Generally, brokerages maintain a list of approved products that have undergone extensive due diligence. Selling away happens when a broker or investment professional recommends his client purchase securities that are not on his brokerage firm’s list. Put simply, when a broker sells away from the approved list of products, he is selling something which has not been properly researched or vetting has not been completed. This creates a greater risk of loss for his client. These transactions are typically not formally recorded. Usually, they are sold as side deals or private deals, and often, both the firm and the client are unaware of what’s truly going on.
Selling away violates industry regulations, meaning the broker could be held liable if the client suffers losses. FINRA prohibits registered brokers or investment professionals from selling away any security unless their brokerage firm has authorized them to make that sale. They must also provide written notice to their firm before making the sale.
Often, selling away happens because a broker wants to earn the commission on a riskier investment product her firm doesn’t offer. On top of that, the broker would not have to share the commission with her firm, which makes it even more tempting. Sometimes, the sale involves a direct or indirect compensation arrangement for the investment professional.
Selling away can sometimes lead to even worse outcomes, from fraud to outright theft. All investments carry some element of risk, but selling away schemes can magnify that risk to an unacceptable level.
Be sure your investment professional is selling you approved securities held by the brokerage firm he or she is associated with by using the following tips:
Selling away is typically both a violation of a firm’s procedures as well as industry regulations. An experienced investment fraud attorney may be able to assist you in recovering your investment by proving your broker was making deals without informing the firm and/or that the firm failed to properly supervise the investment professional or did not have the right procedures in place to catch and follow-up on red flags.
The attorneys at ChapmanAlbin understand the dangers of selling away and are here to help you. If you have a question about an investment or believe you’ve been involved in investment fraud, call us for a free consultation.
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