Articles Tagged with Brokerage firm

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FINRAFINRA has released its annual examination priorities letter.  The letter identifies the specific areas FINRA will be focusing on when it conducts examinations of its member brokerage firms in the coming year. According to FINRA, the list is developed based on trends it has seen in the previous year, as well as concerns expressed to FINRA by brokerage firms, investor advocates, and other regulators.  In 2017, FINRA has said it will pay particular attention to the following items, among other things:

High-Risk Brokers

Statistics show that brokers who have committed misconduct against customers are more likely to commit additional violations in the future. FINRA will closely examine the supervisory procedures of brokerage firms who hire or retain brokers with a significant history of prior sales practice complaints. Specifically, FINRA will be checking the adequacy of the firm’s procedures to detect and prevent future misconduct by recidivist brokers.

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When you open a brokerage account, you most always agree to bring any future disputes that arise with your stockbroker or brokerage firm to FINRA for adjudication. This means you give up your right to a jury trial.

FINRA offers both arbitration and mediation services. In a nutshell, mediation is where a neutral third-party attempts to help the parties reach an amicable settlement. Essentially, the mediator points out what he or she sees are the strengths and weaknesses of each party’s position. In arbitration, one or three arbitrators (depending on the amount in dispute) hear testimony, review evidence, and render a binding decision. It is possible to utilize both methods in the same case.

Here are some of the main ways that arbitration and mediation differ.

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stock marketIf you have lost money in a securities investment, obviously you would be happy to recoup some of those funds.  Many companies that offer assistance with recovering lost capital, however, are likely fraudulent.  A company may sound credible, have authentic looking documents, and a fancy website, but if the deal sounds too good to be true, it probably is a scam.

Tips for Investors

  • Be a Skeptic. Assume that any “recovery” company that reaches out to you is a fake until you can independently verify it is a legitimate company – especially if it claims to be registered with FINRA. Look it up on FINRA’s BrokerCheck site and use the contact information on the BrokerCheck report to reach out to the firm.
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An investor who is abused by his or her securities broker cannot sue in court.  Instead, the investor must sue the broker or the brokerage firm in arbitration before the Financial Industry Regulatory Authority, otherwise known as “FINRA.”

FINRA maintains its own arbitration forum that shares certain features of court litigation, but is also different in many material ways.  Here are seven key differences between FINRA arbitration and litigation in court:

  • First, FINRA staff processes the claim filed by the customer against the broker or firm and administers the entire case, not the clerk of court.
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The financial industry is highly regulated, and for good reason.   People entrust their stockbrokers and financial planners with some of the most important decisions in their lives, namely, what to do with their hard earned life savings.  Money is important, and especially for the elderly and retired, it cannot always be replaced.   If money is lost in bad investments, there might not be time to earn more money back.

When brokers and planners go bad.

And let’s face it, some brokers go bad.   Sometimes, brokers steal money from their clients. Sometimes, brokers make foolish or unwise recommendations.  The broker might do this because he or she is struggling to meet a sales quota, or maybe he or she is just no good at his or her job.

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Virtually every new account application with any brokerage firm contains a pre-dispute arbitration agreement. This agreement requires that any dispute you have with your stockbroker or brokerage firm be filed with the Financial Industry Regulatory Authority (“FINRA”) instead of being filed in court. The FINRA arbitration process differs from the court system in several key aspects: the case will be decided by 1 or 3 arbitrators instead of a jury; there are no depositions or interrogatories permitted in FINRA arbitrations (with very limited exceptions); FINRA arbitrations are not a matter of public record (the only aspect of FINRA arbitration proceedings that is made public are the awards); and there are extremely limited grounds for appealing a FINRA arbitration award.

The way a FINRA arbitration case generally works is this.

Claimant files the initial document that begins the FINRA arbitration called the Statement of Claim.  It identifies the parties, contains the allegations of wrongdoing, and sets forth the amount of damages being claimed.  Once it is filed with FINRA, FINRA will serve it on the named Respondent.   The Respondent then has forty-five (45) days to file a Statement of Answer.

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Brokerage account statements can be lengthy and complicated.  Having a basic idea of what you are looking at, however, can help you spot mistakes, unauthorized activity, and even fraud. Here are the key types of information generally found on monthly account statements and some potential red flags that warrant follow-up with your brokerage firm.

General Appearance

Account statements should look professional and not look altered in any way.  The brokerage firm’s information and logo should be uniform throughout the statement and should match all of the other documentation you have received from the company – trade confirmations, new account forms, and correspondence.

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If you have a brokerage account, you have probably received a pitch from your broker for a securities-backed line of credit (SBLOC).  Contrary to the flashy marketing brochure you may have seen, SBLOCs aren’t the best things since sliced bread.  Know the facts before you consider one.

An SBLOC is a non-purpose revolving line of credit using the securities held in your brokerage account as collateral. “Non-purpose” means you do not have to use the proceeds for a specific purpose like you do with an auto loan or home mortgage.  Basically, you can borrow cash against the value of your investment portfolio to finance basically anything from travel and college expenses to home renovations and buying a car.  Pretty much the only thing you can’t do with an SBLOC is use the money to purchase or trade securities.  This “easy money,” however, doesn’t come without cost or risk.

Typically, an SBLOC agreement will allow you to borrow between 50-95% of the value of your investment portfolio depending on the value of your overall portfolio and the types of investments in the account (i.e. stocks, bonds, etc.)  The interest rates charged on an SBLOC usually follow the broker-call, prime or LIBOR rates plus some stated percentage. SBLOCs typically require you to make minimum payments every month, oftentimes the minimum payment is the calculated interest amount. Because the published interest rates fluctuate, the amount of interest you are charged daily may also fluctuate.