Stockbrokers and investment firms owe a duty of care to their customers. Some times they slip up. Here are common problems.
Unsuitability: Each investor is unique. A sound security for one is a disaster for another.
To address that, the law requires a stockbroker to consider all the investor's circumstances, including the investor's investment objectives, tax bracket, age, health, other sources of income, and tolerance for risk. A broker who negligently puts an investor into an unsuitable investment is liable to the customer.
Over Concentration: No investment is a sure thing, and it is folly for an investor to invest everything in one or only a few investments. It is the don't-put-all-your-eggs-in-one-basket principle. Brokers owe investors a duty to advise them of the wisdom of diversifying.
Due Diligence: Some investments are unsound or overpriced. While the broker does not guarantee any investment, the investor is entitled to assume the broker adequately investigated the investment.
Failure to Supervise: An investment firm is responsible for protecting its customers from misconduct by its brokers. Sometimes, the firm is liable under the doctrine of respondent superior (the employer is responsible for the torts of the employee done in the course of employment). For legally technical reasons, this rule does not always apply. However, in such cases the firm may be liable for failing to adequately supervise the broker.