If you are a millennial you may feel like you have a target on your back. Local financial advisors, stockbrokers, bank representatives, CPA firms, and […]
I believe I should start off by educating those who are already using a financial “advisor” (using that term loosely here) and/or considering using a […]
Securities law is a very specialized type of law. As a result, regulatory bodies such as the Securities and Exchange Commission (SEC) recruit securities lawyers […]
Stockbrokers and other financial advisors are quick to promote expensive, actively managed mutual funds and the alleged benefits that such funds can provide over less […]
Every service agreement of every financial services company limits a damaged investor’s legal recourse to an arbitration process that is administered by FINRA and controlled by Wall Street business interests. This Wall Street travesty limits its liability when it sells bad advice, bad products, and false promises to investors. It is a lot less accountable when investors only recourse is an arbitration process that settles 92% of its claims. See Despite protests, you still can’t sue your broker. It is all about limiting losses when you know you damage a percentage of your clients. Charles Schwab’s latest move would take this travesty to a new level. It would add a clause to its service agreement that prohibited its clients from joining class action suits. Maybe Chuck isn’t your friendly investment guy.
Ryan Bakhtiari, a securities attorney, recommends ineffective solutions. He says investors should document conversations with brokers and save the documents. Plus, he says investors should verify fees, and vet brokers using the BrokerCheck service on the FINRA.org website. Why is this good advice ineffective? Investors are dominated by brokers who are supposed to be financial experts. People rarely question the advice of experts. So what if 75% of brokers are sales reps with limited expertise. Investors simply do not question their sales claims so there is no need to check anything. People select brokers they like who tell them what they want to hear. […]
Investors should pay more attention to who has physical possession of their assets, see Madoff Case Puts Focus on Duties of Custodial Banks. This is the role of a custodian and not financial advisory firms or their representatives. In fact, based on regulations, financial advisors and their firms are prohibited from coming in contact with their clients assets – except their fees. This creates the need for a custodian to take physical possession of assets, process trades, collect dividends and interest, and produce monthly custodial reports that are also called brokerage statements.
Due to the important role of custodians investors should limit their selection of financial advisors and stockbrokers to professionals and firms that use the services of brand name third party custodians such as Charles Schwab, Fidelity, Pershing, and TD Ameritrade. Or, limit their selection of firms that have in-house custodial services to brand name firms. A brand name firm will be responsible for hundreds of billions of dollars and have a long, clean history of providing this type of service to hundreds of thousands or millions of investors.
Madoff used a small, inexperienced custodian to steal from investors. This should have been a major red flag for more sophisticated investors – why did he pick this particular custodian just like he picked the small Long Island CPA firm to audit his accounts? He selected service providers that were easy to control and manipulate. Investors should learn from this debacle and automatically reject small custodians that are recommended to them. Why take this risk when they don’t have to? Perhaps if Madoff victims required a brand name custodian he would have turned down the accounts to avoid scrutiny and his victims would still have their assets. […]