What is negligence with respect to a broker customer relationship?
Negligence is conduct that falls below the legal standard established to protect others against unreasonable risk of harm. For example, a brokerage firm that sends out monthly statements with an inaccurate account balance will have engaged in negligent conduct, at a minimum. For an act to be negligent, the broker did not need to intend the consequence of his conduct, but a reasonable person in his position would have anticipated those consequences and taken reasonable precautions to guard against them. The standard of care that a broker owes his client is at least reasonable care. It is left up to the arbitrators to determine what is reasonable. However, arbitrators many times apply a common sense evaluation to these cases. 49) How common are negligence claims against a broker? 1,936 negligence claims were filed against brokers with the NASD in 2000, making it the second most common type of abuse. 50) What is churning? Churning occurs when a broker overtrades the securities in a custom
