Failure to Supervise
Brokerage firms have a duty to supervise their employees. In the context of securities arbitration, issues concerning failure to properly supervise arise when a financial advisor engages in misconduct that his or her supervisor(s) knew of should have known about. There are many factors that come into play when assessing the adequacy of a brokerage firm’s supervision of its employees. These factors include, but are not limited to, ensuring a financial advisor’s recommendations match the customers investment objectives and risk tolerance; monitoring a financial advisor’s communications with his or customers to ensure accurate representations and disclosures are made; and implementing systems that appropriately flag potentially problematic trading activity.