One of the first things our office ask about when we speak with a potential client about their investment account is if the account is non-discretionary or discretionary. Understandably, most investors don’t know how to answer that question. There are two main reasons for this.
First, too many brokers don’t explain the difference between non-discretionary and discretionary accounts when they are dealing with their customers.
Second, and most often, brokers treat non-discretionary accounts as if they were discretionary accounts, even though the broker doesn’t have authority from the customer to make trades on a discretionary basis.
A non-discretionary investment means that the broker has to contact you and get your permission before making any trades in your account. In a discretionary account, the broker is permitted to exercise their own discretion and make purchases or sales of securities without talking to you and getting your permission. Discretionary accounts are usually memorialized in your brokerage firm paperwork.
In both types of accounts, a broker is required to make recommendations that are appropriate for you, taking into consideration your unique circumstances, goals, and your tolerance for risk.
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$350 Million for Our Clients Nationwide.
In the approximately thousands of cases I’ve handled against brokerage firms, I have seen countless instances where financial advisors and stockbrokers make trades in investment accounts acting as if they had discretionary authority even though the paperwork signed by the customer indicates that the account is supposed to be treated as a non-discretionary account (asking permission).
In these cases, the customer may have various avenues for recovery against an investment professional and a brokerage firm for losses that occurred as a result of the trades made by the broker. These include claims for unauthorized trading, and recommending the purchase of unsuitable investments, as well as claims for breach of fiduciary duty relating to the brokerage control over the investment account.
Our lawyers are nationwide leaders in investment fraud cases.
Whether you have suffered investment losses in a non-discretionary or discretionary account, it is important to understand that you do have legal rights and you may be able to recover your losses if there is misconduct, regardless of whether the broker was acting on a discretionary or non-discretionary authority.
Recovering Losses Caused by Investment Misconduct.