Who may be considered a vulnerable client?
Cases involving stockbroker abuse frequently turn on whether the investor is a vulnerable client. As discussed elsewhere in this website, stockbrokers have a duty to give “suitable” investment advice to their clients. This means stockbrokers must “know the client” and recommend investments that are appropriate for the client given the client’s investment objectives, level of sophistication and other background facts and circumstances.
Investment cases frequently turn into battles of “he said – she said,” with the investor and the stockbroker giving vastly different accounts of what happened. The stockbrokerclaims the investor wanted risk, while the investor claims the opposite.
In such cases, the arbitration panel (or the court if there is no arbitration clause) will frequently evaluate whether the investor has been abused or taken advantage of by the stockbroker. The following are potential signs of a vulnerable client.
The client is elderly. Like it or not, most people begin to lose the ability to handle their financial affairs as they age. In areas with large retirement populations, like Florida, unscrupulous brokers can take advantage of the elderly.
The client is unsophisticated. Does the client have any background or training in investment or business? Or is the client a retired widow whose experience consists of little more than balancing the family checkbook? Keep in mind that wealth does not always equal sophistication. Many professionals, doctors for example, can achieve financial success while understanding little or nothing about investing.
The client relies solely on the broker’s advice. Does the client have many financial and investment advisors or just one?Does the client come up with his or her own investment ideas? Does the client ever reject investment ideas brought to him or her by the broker, or does the client follow the broker’s advice 100% of the time. If the latter is true, the client might be a vulnerable client.
The client does not understand his or her investments. Many people fall guilty to simply opening their account statements and looking at the bottom line. They do not look more closely to make an effort to understand the investments they own. If a client cannot understand his or her account statements, however, or understand or explain the investment strategies being pursued, this may be a sign of a vulnerable client.
Every case is different, of course, and there is no single test of a vulnerable client.
Please Note: Rabin Kammerer Johnson provides these FAQ’s for informational purposes only, and you should not interpret this information as legal advice. If you want advice as to how the law might apply to the specific facts and circumstances of your case, please contact one of our attorneys.
