"Full-service" brokerages that promise to advise clients and monitor their investment accounts are not legally obliged to do more than execute trades requested by the customers, these firms are arguing in arbitration cases heard recently.
Dow Jones Newswires reports that Wall Street is relying on a U.S. Court of Appeals ruling that overturned a $164.5 million jury verdict against Bear Stearns Cos. in 2002. Brokers' duties on a nondiscretionary account "ordinarily end after each transaction is done and thus do not include a duty to offer unsolicited information, advice, or warnings concerning the customer's investments," the court said. (Nondiscretionary accounts are those for which brokers must obtain a client's permission to make any trade, and most individual investors use them.)
Despite this precedent, however, a New York Stock Exchange arbitration panel awarded $625,000 last year to an investor who had sought $5.5 million from the Banc of America Securities unit of Bank of America Corp. And Citigroup Inc.'s Smith Barney unit lost an arbitration decision to an investor who claimed $427,000 in losses and was awarded $200,000.
But Merrill Lynch & Co. won before a stock exchange arbitration panel in a case where the investor wanted $556,000 and argued that his broker's 400 client accounts made it impossible for him to fulfill promises to monitor and advise the account. Merrill argued that the investor's own aggressive trading strategy in a bear market led to his losses.
Full-service companies including UBS AG and Morgan Stanley similarly promise their biggest and best brokerage clients that they will have a bevy of financial experts attending to their every need but in arbitration disavow any legal responsibility to advise.
