Stockbrokers are trained to be customer-oriented, honest, and profit-driven. Although most of those who do get to practice stock brokerage are of good psychosocial qualifications, there are still some who are prone inappropriate behavior, giving a bad name to the whole stock brokerage industry.
There are many forms of misconduct that some stockbrokers engage in. According to statistics, the most common misconduct engaged in by stockbrokers for the past several years is investing a large portion of client portfolios in high risk stocks. High risk stocks are usually those of new and emerging industries, such the technology sector, and the clients affected are more commonly retired clients who rely on fixed income.
One type of stockbroker misconduct is the breach of fiduciary duty. Investors put their complete trust and confidence in stockbrokers, who they expect to fulfill their duties. Stockbrokers are expected to have the necessary skills and knowledge in dealing with investments and money management. As such, brokers and brokerage firms have the greatest duty to deal in good faith with their clients. This duty is known as the "fiduciary duty", as stated in laws. In the event that any abuse or irresponsible investing of the money of the clients, the stockbroker is said to breach his or her fiduciary duty.
Another common stockbroker misconduct is churning. This occurs when the stockbroker frequently buys and sells stocks and securities using a client's account, for the sole purpose of generating higher commissions. Over concentration, another stockbroker misconduct, occurs when the stockbroker invests the client's portfolios in a single type of investment in high concentrations. This is braking the general rule of diversification in investment, which can protect clients against decline in the value of any particular investment.
In the event that any misconduct is displayed by a stockbroker, clients and investors can file claims and other cases with the help of law firms.
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