Heightened Supervision Of Family Members Acting As Stockbrokers

Having a stockbroker in the family may seem like a great thing to have. He or she has their finger on the pulse of the stock market, always aware of a new company or an up-and-coming opportunity. Unfortunately, that’s not always the way it is.

The recent case of 94-year-old Beverly Schottenstein who sued her grandsons for fraud is a stark reminder that having a family member as a stockbroker isn’t always ideal. Although Mrs. Schottenstein is an exception, most people won’t sue a broker who is also a family member.

The assumption is that the relative will have your best interests at heart. However, broker-dealer firms routinely pressure new recruits to contact their relatives to transfer large sums of money into their employer’s firm so they can “build their books.” Brokers are also encouraged to sell commission-based financial products that they may not completely understand themselves.

Brokerage firms also don’t offer the same oversight a broker’s relative’s account with the same scrutiny as a non-relative customer. Even if your relative broker is following the rules as they should, it’s better to have your account subject to the same oversight and due diligence so that your investing objectives are being observed correctly.

FINRA Rule 3210 – Stockbroker Obligations to Family Members

This rule, implemented in April of 2016, governs accounts opened and/or established by brokers at firms other than their employer, which the employer cannot monitor. Brokers must disclose these outside accounts in writing when they become registered and employed at a firm.

The rule includes accounts they may have through a previous employer. The broker must also notify the firm where the accounts are held of their new employer firm. Also included are conditions for accounts opened by “associated persons,” that is, any relative of the broker, such as a spouse, children, parents, or other relatives.

Under Rule 3210, brokers are required to notify their firm in writing of their intent to open a brokerage account at another firm, as well as declare any accounts where they have an interest. All employees are required to declare their intent in writing and request permission before opening such an account if they have any benefit in opening and maintaining said account. They must also notify a firm in writing if a relative opens accounts anywhere other than their employer.

Stockbrokers Taking Personal Loans From Customers

It’s not uncommon for people to borrow money from relatives, including their parents. If they’re a stockbroker, however, they are usually required to notify the firm in writing of the loan or loans, especially if the person making the loan is a relative or close friend.

Most firms have policies regarding brokers borrowing money from customers, generally prohibiting the practice. But when the customer is a relative or close personal friend, the rules are different.

FINRA Rule 3240 spells out the criteria for brokers who have a need to borrow money, and indicates if and when the firm should be notified.

Let Silver Law Help Recover From Stockbroker Misconduct

Silver Law Group represents investors in securities and investment fraud cases. Our lawyers are admitted to practice in New York and Florida and represent investors nationwide to help recover investment losses due to stockbroker misconduct. If you have any questions about how your account has been handled, call to speak with an experienced securities attorney. Most cases are handled on a contingent fee basis, meaning that you won’t owe us until we recover your money for you. Contact us today and let us know how we can help.