Recently, I was asked to review investment account statements for a number of individual investors who were surprised to learn their broker had unexpectedly left the brokerage firm. Or as they say in the business, the broker was “permitted to resign.”
My initial review of the investment account statements suggests the broker may have “churned” the accounts. Churning is defined as buying and selling primarily to earn commissions and fees. Churning tends to occur under the guise of a bull market and is often discovered only when the market turns bearish.
My review of the client account statements reminds me of the importance to “vet” your broker. This can be done simply by accessing the Broker Check reports found on FINRA.org. The Broker Check link is www.brokercheck.finra.org.
The Broker Check report provides a broker’s employment history, education, all securities licenses held; as well as a summary of any customer or regulatory complaints. The existence of more than a few customer complaints is often a red flag. If your broker has more than three customer complaints, take the time to ask about the complaints. A professional will not dodge the conversation and openly discuss the matters.
I am also of the opinion that a good measure of a broker’s reliability is his or her employment history. Does a broker have a stable history at just a few firms? Or, does the broker make a move every few years? One common characteristic of a rogue broker is the tendency to bounce from firm to firm. Many problem brokers move on to another firm because they were asked to do so by management. If your broker is moving, ask him or her why. You have a right to know.
(Mark Brewer of Investment Recovery Counsel has represented hundreds of individual investors and seniors in Wall Street disputes since 1994. Mark Brewer can be reached via email at firstname.lastname@example.org)