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In Focus #70: June 9, 2009


Financial Advisers in Motion; A Primer On the Employment Issues Facing Those in Transition


Retirement Income: Repairing the Damage to Assure the Flow


Train Wrecks of Estate Planning


A Complex Game: The Life Settlement Process
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An Investor's Checklist For Detecting Stockbroker Abuse


ost stockbrokers and financial planners work hard to earn an honest day's pay. Unfortunately, too many do not do so. As a result, investors need to be alert for abuse.

How can investors protect themselves? Before we discuss our 15-point checklist, let's examine two preliminary safeguards. First, you must clearly communicate your needs and objectives to the broker in opening your account. To ensure that the broker understands those needs and objectives, you should request, obtain and maintain a copy of the "new account form" or "account agreement". This business record will detail what the brokerage firms understands your needs and objectives to be, as well as other pertinent information. If there is a discrepancy, report it in writing and request appropriate changes.

Second, you should promptly examine all "confirmations" (which confirm that a trade has been made) and monthly account statements. Be sure to keep copies of all confirmations and monthly account statements. Additionally, you should maintain copies of any documents that the broker sends you in connection with recommending a particular investment.

With those two safeguards in mind, what are you looking for in trying to detect stockbroker abuse? Use this checklist:
  1. Am I buying securities on margin, that is, with the use of borrowed money?
  2. Am I buying or selling options (apart from selling "covered" call options for which I already own the underlying security)?

  3. Am I buying futures?

  4. Am I buying and quickly selling just to recognize small profits, instead of holding for the longer term? As a related matter, am I buying the same stock that I recently sold?

  5. Do I own stocks valued at less than $5 per share?

  6. Am I holding my mutual funds for less than 3 years, instead selling to purchase some other mutual fund?

  7. Is my broker recommending that I buy a stock because he has special or inside information about the company?

  8. Am I seeing trade confirmations, which confirm trades that the broker recommended, marked "unsolicited"?

  9. Does my broker call me after he has placed a trade, and not beforehand?

  10. Does my portfolio contain more than 25% of my money in any one security?

  11. Have I received a letter from the brokerage firm thanking me for my business, and asking me that I call should I have any questions?

  12. Has my broker's boss, the branch office manager, called me?

  13. Do I see, on my confirmations or monthly account statements, securities that I do not recognize or trades that I do not remember authorizing?

  14. Do I feel that my money is at risk more than I want it to be?

  15. Am I trying to time the market?

  16. Investors who answer "yes" to any of these 15 questions may be the victims of abuse, and should seek legal assistance promptly.




Sponsored by James J. Eccleston. This Web site contains material of general interest. It is neither intended to, nor constitutes, either legal advice or investment advice.
Always consult an attorney and/or investment adviser when building and protecting your wealth.

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