All financial advisors and brokerage firms have a fundamental responsibility to deal fairly with their clients, including communicating with a client prior to executing a transaction and following the client's instructions. Unauthorized transactions are trades that a broker makes for a customer without the customer’s permission or authorization.
In most instances, financial advisors must obtain permission from the investor prior to executing any orders, unless an investor has granted a broker written authorization to make transactions on his or her behalf without prior approval. As a result, if you find a transaction or investment in your account that you did not discuss with your financial advisor and you suffered investment losses, then you may have a claim for unauthorized trading.
Failure to Follow Directions
Likewise, where an investor instructs a financial advisor to sell an investment and the financial advisor neglects to sell the investment in a reasonable time, then the financial advisor may have committed unauthorized trading. It should be noted that cases of this variety are fact intensive and heavily dependent on the investor's version of the facts versus the financial advisor's version. Thus, it is always a good idea to document any instructions in writing in order to protect your interests.
Even in cases where an investor has provided the financial advisor "discretionary trading authority" or a written power of attorney, the financial advisor can still exceed authority by executing trades outside of the scope of the trading authority. For example, if a client provides discretionary trading authority to a financial advisor, but expressly restricts the authority by excluding the purchase of tobacco stocks, and the financial advisor purchases tobacco stocks, then the financial advisor has exceeded authority and executed an unauthorized trade.
At Lufrano Law, LLC, we have experience bringing unauthorized trading claims against negligent or fraudulent financial advisors. Please contact us today for a free, no-commitment consultation.