Despite the over-hyped stories on the news, most financial professionals are honest, hard-working people. After all, cheating clients isn't a good way to build a strong business and generate referrals; as a result, it isn't a common practice.
That said, the world of financial services can be complicated and confusing at the best of times and when you feel like you have a problem with your broker, it can seem even worse. Fortunately, with a little organization and a bit of elbow grease, most problems can be resolved.
The first step in the process is to contact your broker or financial advisor. Put your concerns in a letter and deliver it in a way that enables you to confirm receipt. Keep a copy for yourself. Many times, simple misunderstandings or miscommunication can be resolved quickly and easily. If the issue is not resolved, your copy of the letter serves as proof of your efforts to address the situation. (For related reading, see Evaluating Your Broker.)
If sending a letter does not resolve the issue to your satisfaction, the next step is to contact your broker's boss, generally referred to as a branch manager. Once again, do it in writing. If your complaint is legitimate, the branch manager has every incentive in the world to help you resolve it. Successful firms don't want unhappy clients. (To learn more, read Tips For Resolving Disputes With Your Financial Advisor.)
If you still aren't satisfied with the response you get, you can contact the firm's compliance office. In today's heightened regulatory environment, compliance is something that most firms take very seriously. Send your complaint in writing, along with copies of your earlier letters. Provide details about the issue and the steps that you have taken to resolve it. Give the compliance officer 30 days to respond. Should the issue remain unresolved, the fourth step is to contact the regulators.
U.S. Securities and Exchange Commission
The U.S. Securities and Exchange Commission (SEC) oversees the securities market with a mandate to protect investors. If you file a complaint, the SEC's Division of Enforcement will investigate by contacting the parties involved in the issue. In some cases, contact by the SEC leads to dispute resolution. In others, the SEC may take further action, such as filing a lawsuit and/or imposing sanctions. In cases where the company under investigation denies the allegations and no proof exists to contradict the denial, the SEC cannot act in place of a judge. Arbitration or legal action may be required. (To learn more about the SEC, read Policing The Securities Market: An Overview Of The SEC.)
The Financial Industry Regulatory Authority
Previously the National Association of Securities Dealers (NASD), FINRA is responsible for regulating all securities firms doing business in the United States, including registration of securities professionals, writing and enforcing securities laws, keeping the public informed and administering a dispute resolution platform. FINRA's compliance program is designed to address disputes with brokerage firms and their employees. Federal law gives FINRA the authority to discipline firms and individuals that violate the rules. However, disciplinary action is no guarantee that investors will be compensated for losses. The issues that FINRA addresses include the recommendation of unsuitable investments, unauthorized trading, failure to disclose material facts regarding an investment and unauthorized withdrawals from an investor's account. FINRA also provides an investor complaint application that allows individual investors to submit a complaint regarding a brokerage firm or broker who has conducted business improperly.(To learn more, read Investigating The Securities Police.)
State Securities Regulator
In the United States, each state has its own securities regulator. Contacting your state's regulator is another avenue to explore when a dispute arises.
Understand the System
A significant number of investors set themselves up for disappointment because they don't understand their investments and they don't understand the regulatory system. Losing money on an investment is not always a reason to call for help. You need to read the fine print and make sure you understand everything your advisor has proposed for your portfolio - including the potential for a decline in value - before you agree to make the investment. Buying something that you don't understand and then trying to get your money back if the investment loses money is often a recipe for disaster.
The other important issue to remember is that regulators investigate breaches of industry rules and regulations. They do not assist with the recovery of lost money. Even if you have been the victim of an unscrupulous individual, litigation may be required to recover assets. (For more insight, see Is Your Broker Acting In Your Best Interest?)
Mediation and Arbitration
Mediation is an informal, voluntary process whereby an independent third party facilitates a settlement between the parties involved in a dispute. Mediation is a voluntary process, and the outcome is non-binding.
Arbitration is another option. Some types of securities accounts include an agreement in which both parties agree to settle their differences in arbitration should a dispute arise. If you made such an agreement when you opened your account, the arbitrators will apply the applicable laws to your case. In some instances, the entire dispute is handled through written correspondence and records, so be sure to keep copies of all documents that will be relevant to your case. Arbitration decisions are final and binding.
Litigation - The Last Resort
If you have a legitimate compliant and it remains unresolved after you have followed all of the steps in the process in an effort to address it, contact an attorney. Litigation is often a slow and expensive process, and there is no guarantee that you will get the solution that you are seeking.
A far better choice than litigation is to make every effort to avoid this path altogether. Before you invest, learn about the various types of financial services professionals that are available to assist you. Some upfront research can save you a great deal of heartache, and money, later on.
For further reading, see Don't Take Broker Excuses At Their Word.