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Unsolicited Trades

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Oct 18, 2008 1:28 am

The firm I am at tells me that if I do an unsolicited trade that I do not feel is in line with the client profile (i.e., the profile is moderate and the client wants to be aggressive or speculative, i.e., buy a low-priced (under $5), exchange-traded stock), as long as I have a non-solicit signed by the client I am covered.

However, the firm I came from told me that even though the trade is not solicited, I am still responsible in the eyes of FINRA since I can - and should - refuse to do the trade and it is my job to “keep people from harming themselves”.

Can anyone clarify?

Oct 19, 2008 11:18 am

newrookie, I think that your old firm was wrong or you misunderstood them. 

  Imagine this scenario:   Client: "Sell $100,000 of XYZ mutual fund.  Please put all of it in stock 123." newrookie: "No.  That's too risky and you'll harm yourself." Client: "I'm not asking for your permission.  Do it." newrookie: "No.  I can't let you harm yourself."   Result: XYZ drops to $75,000.  Speculative 123  doubles in value.  The client has $75,000 when he should have $200,000.    My take is that since you do not have discretion in the account, this works both ways.  You can't make trades without your client's permission.  You also can't refuse trades.  It's your clients money and not yours.  The client makes the ultimate decisions.   If the client wants to do something stupid, you have the responsibility to tell him why it is stupid.  You still have to make the trade if he wants to go through with it.  You just need it to be documented that it was unsolicited to protect yourself.    If you refuse to follow a client's order, and it costs the client money, do you think that you might just find yourself with a complaint on your record and an arbitration hearing?
Oct 19, 2008 1:40 pm

I dont think the point is to refuse to sell the Fund. The point is to refuse to buy the penny stock.
I’ve seen a guy taken to arbitration because he did a trade after previously refusing to do it many times, because the client threatened to sue him if the stock went up and he didnt buy it.
He ultimately ceded to the clients request, and he lost in arb.
Unusual case, but this actually happened, to the best of my understanding.
As far as refusing to sell when i client instructs - that part of it you are correct on for sure-you need to follow the clients instructions.

Oct 22, 2008 1:48 pm

Always document everything especially if a client wants to do an unsolicited trade.  If the client is a “real client”  he will not make a beef if his reco turns sour regardless of his investment objectives.  If you feel the client is a guy who would ultimately try to put you on the hook for his poor judgement, update his profile, get a letter regarding the transaction from the client and save it in the clients file.

  Bottom line, in the eyes of FINRA the broker is always the bad guy; even when you're trying to do the right thing.