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Failure to Supervise

UBS Financial Services of Puerto Rico is responsible for the supervision of all the activities of its registered representatives, known as financial advisors or stockbrokers by the investing public. The Financial Regulatory Industry Authority (FINRA) Rule (3010) establishes the required supervision of registered representative compliance with the securities industry standards of care for the handling of customer accounts and is reflected in brokerage firm compliance manuals. The brokerage firm compliance manuals provide written procedures designed to achieve compliance with security industry standards by informing the financial advisors of the firms policies and procedures, as well as prohibited conduct.

Supervisory systems developed by brokerage firms should be designed to supervise the specific activities related to the type of business conducted by the financial advisors at the branch office. Branch office managers are the first line of defense to protect the investors from violations of FINRA rules and regulations. UBS and the branch office manager is responsible for the supervision of:

  • Financial advisor hiring and selection;
  • Financial advisor training;
  • Financial advisor communications with customers;
  • Financial advisor presentation materials;
  • Financial advisor client recommendations;
  • Financial advisor client transactions.

Branch office managers accomplish the supervision of their branch office supervision through the delegation of tasks but not the responsibilities given to them by the brokerage firm. Span of control issues require delegation of supervisory tasks to front-line managers who supervise the day-to-day activities of registered representatives assigned to them for supervision. Because of the number of registered representatives and the number of transactions at the branch office level, an electronic management by exception system is used for the oversight of activity in client accounts. The monitoring and review at the branch office is accomplished through the use of exception reports developed by the brokerage firm to flag certain activities in customer accounts. The activities that are monitored may include:

  • percentage decline in brokerage account equity;
  • levels of margin and bank loans related to brokerage accounts;
  • excessive trading or “churning”;
  • broker account revenues based on account equity; and
  • geographic concentration.

In some instances, direct communications with customers by the branch managers is required to determine whether the client understands the investment strategy and the risks associated with the strategy employed by their financial advisor. This may be difficult for a branch manager because the financial advisors they supervise do not want to be perceived as being scrutinized by their clients. Investors who have questions about the activity in their brokerage accounts should not be thwarted in their efforts to obtain further clarification for questions that are not fully answered by their financial advisors.

Our team of lawyers can help you determine whether an investment loss is the result of a failure to supervise the activities in a brokerage account. If an investor suffers losses as a result of a failure to supervise they may be able recover their losses in a FINRA arbitration claim.