One of the biggest mistakes we have witnessed over the years is when unsuspecting individuals hand their life savings over to stock brokers and brokerage firms who, at the very moment this new account is receive, have an extensive history of regulatory problems and customer complaints. The brokerage industry is very tolerant and as surprising as it may be to you, it is not uncommon for brokers and their firms to have paid out large (sometimes six figures or higher) settlements for customer related complaints over the years preceding the day you are getting ready to entrust them with your life savings.
Presently there is no requirement for these details to be provided to you, unless you ask or unless you obtain them yourself, which you may easily do.
The second most easily avoided problem is the small local firm that has little or no capital to which an aggrieved investor may look to for compensation in the event there is a problem. The industry allows broker dealers to operate with minimal capital requirements and they are not required to maintain insurance to cover customer losses. This means that even if you have a strong case and can show liability you may not be able to recover your losses since the company may not have the ability to pay. See my discussion regarding this here.
How to protect yourself and your loved ones?
Check the regulatory background of the broker and the brokerage firm
-it costs nothing and can save you everything.
FINRA requires that each broker maintain records, available to the public, that disclose the employment, disciplinary and customer complaint history of that broker as well as the brokerage firm. While we are happy to obtain these records for you upon your request, you are free to obtain the report on any broker (called a CRD) by visiting the BrokerCheck section of the FINRA website.
This is the first step we take at the office in looking at any case. Many times we have had clients tell us that they never would have entrusted the subject broker with their life savings had they been aware of the prior problems disclosed on the CRD.
It goes without saying that if you look at the CRD report for the broker you are thinking of hiring, and it reveals a multitude of customer complaints for many years and if the firm has paid out hundreds of thousands of dollars settling these claims and/or the broker has been fired a number of times for violating firm policy and/or the broker has filed personal bankruptcy one or more times over the years, you might reconsider whether you should give him your life savings.
Yes, we have seen all of that on a single broker's CRD.
With regard to the financial capability of the brokerage firm, your safest path is to deal with one of the many well-known large national or regional firms. This will help you avoid 95% of the problem. If you are tempted to hand over all or a part of your fortune to one of the many local unknown firms then your only protection is to obtain a copy of the annual financials which the firm is required to file with the SEC. This is of limited benefit since the financials are not always timely. You can also ask the broker to provide you with details regarding any insurance coverage they may have for customer losses, since a small percentage of the smaller firms do maintain some coverage.
If you have questions about the way your brokerage account has been handled or are in the process of investigating a new broker or brokerage firm you contemplated doing business with, give us a call at 561 391 1900 and we will be happy to help.
Robert H. Rex
Rex Securities Law Dickenson Murphy Rex & Sloan
150 East Palmetto Park Rd, Suite 500
Boca Raton FL 33432
Representing clients throughout Florida, Nationwide and abroad. Including Boca Raton, Boynton Beach, Cape Coral, Coconut Creek, Coral Springs, Dania, Davie, Daytona Beach, Deerfield, Delray Beach, Eau Gallie, Fort Lauderdale, Fort Myers, Ft. Pierce, Frostproof, Gainesville, Gulfstream, Hobe Sound, Hollywood, Hypoluxo, Hialeah, Highland Beach, Jacksonville, Jensen Beach, Juno, Jupiter, Key West, Kissimmee, Lakeland, Lake Wales, Lantana, Manalapan, Margate, Melbourne, Miami, Naples, Ocala, Ocean Ridge, Okeechobee, Orlando, Panama City, Pensacola, Plantation, Pompano Beach, Port Charlotte, Port St. Lucie, Punta Gorda, St. Augustine, St. Petersburg, Sarasota, Spring Hill, Stuart, Sunrise, Tallahassee, Tampa, Tarpon Springs, Vero Beach, Wellington, West Palm Beach and Weston. By Robert H. Rex, Esq.
By Robert Rex
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