Failure to Supervise

Every brokerage firm (“broker-dealer”) or registered investment advisory (“RIA”) firm has what is known as a compliance department and other supervisors, including but not limited to regional and branch managers, whose job is to monitor the trading activities and communications of stockbrokers and financial advisors.

The standards set by FINRA, the SEC, and state regulators affect the standards for broker conduct in their compliance manuals and written supervisory procedures. Firms that “talk the talk” need to “walk the walk,” and if they don’t, customers who have lost money due to broker misconduct in cases of churning, overconcentration, negligence, unsuitability and other violations of these standards, stand to collect in FINRA arbitration.

Failure to supervise is probably the most important cause of action in a FINRA or AAA arbitration or in a court case. Without it, a broker-dealer or RIA can just step away from liability, leaving that burden to a broker who can just go bankrupt and become uncollectable.