Sometimes unscrupulous stockbrokers and investment advisors take advantage of your trust and you can find yourself facing the loss of your life savings because of the dishonesty of others. Investors lose billions of dollars each year to fraud stockbrokers, stockbroker misconduct, investment firm negligence and securities fraud. In recent months, these investment losses have escalated to astonishing levels, with Wall Street and Corporate America facing accusations that range from gross investment negligence, to stockbroker incompetence, to securities fraud and theft.
Victims of stockbroker fraud can include anyone: Individual investors, retirees, small businesses, corporations, pension funds, and institutional investors.
How to Spot Problems with your Account
Your relationship with your financial advisor is a two way street. It can only succeed if information is freely and frequently exchanged between both parties. This starts out with good telephone communications. After your initial meeting most of your subsequent conversations with your financial advisor will be on the telephone. Bearing in mind your broker has numerous clients and cannot respond to each call every day, you should expect a return call within a reasonable time. And if your call pertains to a pending trade, you should receive a return call immediately.
A sign of trouble is the string of un-returned phone calls. There may be a number of reasons for this, none of them particularly beneficial to the client. Unreturned phone calls either means a broker is not in the office, has too many clients, cannot be bothered or is simply embarrassed or unwilling to address a problem in the account. Under any circumstance it is your right to have a new broker assigned to the account, or have the account transferred. When looking at the monthly statements make sure you do not find any unauthorized trades or unauthorized changes to your portfolio. Any unauthorized transactions should be brought to the attention of the branch manager immediately. Also be mindful of an increase in trade recommendations made by your broker. For example, if you typically make one trade a month, and have been making three or four for the last two months at the bequest of your broker, take a step back and ask why the increased activity, and what are the costs of this increased activity. Not only is it more expensive, increased transaction activity could be a sign of excessive trading or churning.
Another area for concern is when your trade confirmations are marked incorrectly. At the time you open your account you should ask your broker to explain to you the difference between solicited and unsolicited transactions, and how they are marked on the trade conformation. An unsolicited transaction is one you approached the broker to make. It is typically noted by the marking of Unsolicited, or perhaps a Capital letter "U" on the confirmation. Incorrect tickets should be brought to the manager's attention immediately.
Then also when you notice the values on your account statement are declining and the broker tells you the monthly statements do not reflect the true value of the account. Although technically true because values fluctuate all day every day, you should have a means to value the positions in your account at any time. And, if fluctuating values concern you, you probably should not be invested in that particular security.
Lastly, if your broker asks you to change strategy in the account or go with a more aggressive approach, make sure you know all the risks. New strategies usually mean a new stock offering the firm is taking to market. New issues can provide a quick boost in value to your portfolio, but most studies have shown that new issues usually return to earth within a year after coming out. The only one who is guaranteed to win in a hot issue is the broker who makes the sale. New strategies can also mean the broker has discovered a new industry or a new type of product to sell that pays bigger commissions. Be wary. Before you commit to something new, make sure you have all the facts, and satisfy yourself that you understand all the risks.
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