Solicited vs Unsolicited Trades

Did you know there are two kinds of trades? Solicited and Unsolicited.

The distinction is important for you as an investor to be aware of.

Read on to understand the difference between a Solicited trade and an Unsolicited trade, to learn about FINRA rules related to Solicited and Unsolicited trades and what actions you should take if you feel that your financial advisor may be mishandling your account.

What Are Solicited Trades?

A Solicited trade is a trade recommended and initiated by your stockbroker or financial advisor.

For example, if the broker calls you up on Monday morning and suggests you buy 100 shares of XYZ tech stock, that is a Solicited trade. The confirmation you receive from the brokerage firm following the trade is required to have a notation designating the trade as being “Solicited”. Note that the practice of marking trades as Solicited or Unsolicited varies from firm to firm. Some firms only mark confirms with  Unsolicted and all unmarked confirms are presumed to be Solicited.

This is so the firm’s compliance department knows that the broker made the recommendation which places responsibility on the firm which has a duty to make only recommendations that are suitable (more on that below).

Beware-Over the years we have seen many cases where the broker purposefully mismarks a trade as be Unsolicited in order to disguise the trade as being the idea of the customer in an effort to avoid scrutiny by the firm’s compliance department and in an attempt to avoid liability later should the trade generate losses in the account.

To read about some actual case examples involving Solicited trades, follow this link.

What Are Unsolicited Trades?

Unsolicited trades are trades that the customer initiates and instructs the broker to make on behalf of the customer.

For example, assume while watching your favorite investment guru just following the evening news, you decide to invest in a company which looks like a good investment. The next morning you call your financial advisor and tell him to buy 100 shares. That is an Unsolicited trade.

To read about some actual case examples involving Unsolicited trades, follow this link.

The Role of FINRA

FINRA (The Financial Industry Regulatory Authority) is a government authorized not-for-profit organization that oversees U.S. broker-dealers (firms like UBS, Merrill Lynch, Edward Jones, Raymond James, and thousands  of others)  and their registered representatives (brokers).

According to their website:

FINRA—Financial Industry Regulatory Authority—is authorized by Congress to protect America’s investors by making sure the broker-dealer industry operates fairly and honestly. We oversee more than 624,000 brokers across the country—and analyze billions of daily market events.”

Under FINRA Rule 2010, “A member, ih the conduct of its business, shall observe high standards of commercial honor and just and equitable principles of trade.”

This Rule has wide ranging application. With regard to Solicited and Unsolicited trades, the broker is required to accurately report the source of the idea for the trade, ie: was it a recommendation by the broker or did the customer come up with the idea. This may be of significance in the future should losses be suffered.

Suitability and Recommendations

FINRA Rule 2111- Suitability

Brokers have a duty to make recommendations that are suitable, considering the age, health, overall financial circumstances and level of financial sophistication.

2111(a) states in part: “A member or an associated person must have a reasonable basis to believe that a recommended transaction or investment strategy involving a security or securities is suitable for the customer, based on the information obtained through the reasonable diligence of the member or associated person to ascertain the customer’s investment profile. A customer’s investment profile includes, but is not limited to, the customer’s age, other investments, financial situation and needs, tax status, investment objectives, investment experience, investment time horizon, liquidity needs, risk tolerance, and any other information the customer may disclose to the member or associated person in connection with such recommendation.”

For example, what may be suitable for a 50 year old professional making a high six figure salary, with a 401K balance of a million plus and growing annually, is substantially different than what is suitable for  a 70 year old retiree living on social security and a modest income from an IRA with a million or less balance.

The investment objectives as well as the risk tolerance between these two scenarios is distinctly different and stockbrokers and financial advisors are charged with making suitable recommendations taking those factors into account.

The duty to make suitable recommendations is also accompanied with a duty to fully and adequately describe the risks associated with a Solicited trade.

If the broker solicits you to make a trade that is unsuitable taking these above described factors into account, the firm may be held liable for the losses you have suffered. Customer disputes to recover losses are handled through FINRA arbitration.

The Consequences of Mismarking Trades

Mismarking a trade is when a broker solicits you to invest in a particular company or product and then marks the trade as Unsolicited. Should you later suffer damages on that investment and seek to recover from the firm, they will argue that the investment was your idea and deny liability.

See links to Solicited and Unsolicited trades for more information of actual situations.

How to Protect Yourself as an Investor

Should you believe your broker is mismarking trades, you should notify the firm immediately and you should also contact an experienced securities attorney in order to determine if you need to take any action. Delay in pursuing claims works is advantageous for the brokerage firm and detrimental to your ability to recover damages.

Questions About Mismarked Solicited Trades or Other Issues With Your Account?

We have been helping investors deal with these kinds of issues for 30+ years. We do not charge to evaluate a case and welcome your call. If you think your account has been mishandled in any manner, call to speak with experienced investment fraud lawyer Bob Rex at (877) 224-3199 for a free consultation.

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