FINRA regulates over 600,000 registered representatives across the United States. Each year, it brings thousands of disciplinary actions against brokers and firms who violate securities rules. Understanding these violations helps you recognize when your advisor crosses the line.
The Most Common FINRA Violations That Harm Investors
Here are the most common FINRA violations — the ones most likely to damage your portfolio.
1. Unsuitable Investment Recommendations
Brokers must recommend investments that fit your risk tolerance, time horizon, and financial goals. When they push products that clearly do not match your profile, that is an unsuitability violation — the most common FINRA finding.
Common examples include putting retirees into high-risk speculative stocks, recommending illiquid products like non-traded REITs to clients who need liquidity, and concentrating a conservative portfolio in a single volatile sector.
Learn more about unsuitable investment recommendations and how to spot them.
2. Excessive Trading and Churning
Churning occurs when a broker trades excessively in your account to generate commissions. The trades serve the broker’s income, not your investment objectives. FINRA uses metrics like turnover rate and cost-to-equity ratio to detect churning.
Warning signs include frequent buying and selling of the same securities, high commission costs relative to your account size, and trades you did not authorize or understand. Our guide on churning and excessive trading explains how to calculate whether your account has been churned.
3. Misrepresentation and Omission
Brokers may not make false statements about investments, nor may they leave out material facts that an investor needs to make an informed decision. This violation covers everything from exaggerating returns to hiding risk factors.
Common misrepresentations include describing a risky investment as “safe” or “guaranteed,” failing to disclose conflicts of interest, and providing inaccurate performance projections.
4. Unauthorized Trading
Your broker cannot execute trades in your account without your consent. This rule applies to both buying and selling. If you notice trades you did not discuss or approve, that is unauthorized trading — a serious FINRA violation.
Discretionary authority (the right to trade without prior approval) must be granted in writing. Even then, every trade must align with your investment objectives.
5. Selling Away
Selling away means a broker sells securities outside the scope of their firm — often private placements, promissory notes, or other unregistered investments. These transactions bypass the firm’s supervisory systems and compliance reviews.
If your advisor pitches an “exclusive opportunity” that is not held or supervised by their firm, that is a red flag. Selling away violates FINRA Rule 3280 and often involves fraudulent schemes.
6. Failure to Supervise
Firms have a legal obligation to supervise their brokers. When a firm fails to implement reasonable supervisory procedures, it can be held liable for the resulting investor harm. This is how firms get ensnared even when a single rogue broker caused the damage.
7. Outside Business Activities Without Disclosure
Brokers must report outside business activities and private securities transactions to their firms. Failure to disclose these activities is a FINRA violation. These undisclosed activities often create conflicts of interest or expose clients to unvetted risks.
How to Check for Violations
The best way to check whether your advisor has FINRA violations on their record is to search FINRA BrokerCheck. Every disclosure event, regulatory action, and customer dispute appears in their public report.
If your advisor’s BrokerCheck report concerns you, review our red flags checklist for next steps.
What to Do If You Have Been Affected
If you believe your advisor committed any of these violations, take action immediately:
- Document everything — Save statements, emails, and trade confirmations.
- File a FINRA complaint — Learn how here.
- Consult a securities attorney — For significant losses, legal representation often produces better outcomes. Call Haselkorn and Thibaut at 1-888-885-7162 for a free consultation.
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