Buying and Selling Securities without an Investor’s Prior Consent is Unauthorized Trading

In conducting business, financial advisors naturally encourage investors to believe in them, since advisor-investor relationships, first and foremost, require trust and confidence – the foundation of a successful business relationship.

When establishing a relationship with a financial advisor for investments, however, it is necessary for an investor to set and make clear to the advisor his/her investment objectives, and risk tolerance level since these will serve as the advisor’s bases in determining the best financial strategy for the investor.

A financial advisor should never execute trades in an investor’s accounts without the latter’s expressed permission. Though he/she can freely make recommendations, it is only the investor who can make the final decision if trading will take place. In certain cases (though very rare), investors provide a written discretion, giving financial advisors permission to trade without prior approval for each trade. Not only does the law require a financial advisor to obtain an investor’s permission before making any transaction, but if he/she does this, then he/she can be accused of unauthorized trading.

Financial advisors buying and selling securities without an investor’s prior consent may be trying to defraud clients even if they believe they’re acting in their investor’s best interests. To guard against unauthorized trading, the Financial Industry Regulatory Authority (FINRA) requires advisors to regularly send their investors statements that document transactions in an account. These notifications are supposed to allow investors to track the trading of their securities. However, not all investors review their monthly statements, creating an opportunity for financial advisors to trade on their behalf without their permission and without them noticing.

Unauthorized trading is one way a financial advisor can harm a client. To avoid being a victim of this illegal act, it is necessary for investors to read their account statements thoroughly. Wise investors read and retain all transaction notifications and confirmations. Ignoring these papers can result in failing to notice suspicious activity right away.

In the event that an investor suspects unauthorized trading, he/she should know that the sooner he/she files a claim of unauthorized trading in his/her account, the better his/her chances of winning an arbitration case. A skilled unauthorized trading attorney can also help recognize signs of unauthorized trading and other forms of broker misconduct in his/her account and give him/her professional legal advice moving forward.

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