Investor Bill of Rights 4 and 5

Continuing the series on the North American Securities Administrators Association (NASAA), Investor Bill of Rights, what follows is “Right” number 4 and 5 along with my comments:

Investor Right #4) Receive a copy of all completed account forms and agreements.

Comment: An investor is entitled to all documents relating to their account.  Keep the documents in a safe place. They should regularly be updated by the broker dealer and be certain that you always have the latest updates.  There are a lot of horror stories where firms mysteriously have documents that the customer does not recall seeing.  The firms often sends letters stating that the customer should call if they disagree with anything shown on the attached form.  Many, if not most, customers pay little attention to such correspondence, giving the broker dealer carte blanche to make changes as they see fit to protect themselves at the expense of the customer.  If you choose to have an account with a broker dealer, then you owe it to yourself to carefully read and react to all correspondence received from the firm. 

Investor Right #5) Receive account statements that are accurate and understandable.

Comment: Check account statements the same way you do your bank statements. Errors are made. Ask for complete explanations about anything you do not fully understand. This is often even more important than the account forms and correspondence a customer receives from the firm.

This involves much more than just checking the balance to see if the account value is up or down. There may be trades reflected in the account that you did not approve. Failure to raise a question may allow the broker dealer to defend itself in a later claim by saying you ratified the unauthorized trade. The broker will also say, in many cases, that you were aware from the statement that you had losses but chose to continue holding the securities. We see case after case where a broker denies, contrary to the customer’s position, recommending that the customer “hold.” The broker then points to the statement and says the customer clearly knew about the declining value and had an obligation to sell the security.

Broker dealers claim to offer cradle to grave advice in their slick and clever advertising. However, at the first sign of a dispute, they revert to just being an order taker and try to shift all responsibility back to the customer.

Obviously, if that were the case there would be no need for a full-service broker. A discount broker can fill the role of an order taker at far lower costs and without the risk that you will be sold the product paying the highest commission rather than the product that is best for your financial future. 

To learn more about Dale Ledbetter, visit his website at www.dlsecuritieslaw.com.

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