Your investment responsibilities do not end once you have selected a broker and an investment. Among the more important responsibilities are keeping your securities in a safe place, maintaining your records, and monitoring your investment account. If something goes wrong, it is important to quickly recognize the problem and take appropriate action.
When you purchase a share of stock or a bond, you may receive a certificate representing your ownership. These valuable documents should be kept in a safe place. It is costly and time consuming to replace a certificate if the original is lost or destroyed.
If you purchase stock through a brokerage firm, you usually have three choices on how your stock certificates are handled:
Discuss these options with your broker and decide which is right for you. Ask about additional fees charged by the broker for holding stock in street name and any related custodial fees.
After you have invested, you should receive periodic account statements. Do not throw them away. Read each statement and make sure the trade was completed exactly as you instructed. Check to see how much commission you were charged. You should expect to be informed in advance of increases in charges such as commissions and custodial fees. If you elected to have your securities held in street name, you can request that dividends or interest payments be forwarded to you.
Designate a file folder for storing all investment-related information. As soon as you have received and reviewed the confirmation slips and monthly statements from your broker, file them. If you have a dispute with your broker regarding your investment, this file may be invaluable.
When you fill out your new account form, you provide the broker with information about your financial situation, your investment objectives, and the level of risk you are willing to take.
You have the right to expect your broker to follow your instructions and to recommend appropriate investments. Securities regulators use the term “suitability” to refer to the question of whether a broker’s investment recommendations are appropriate for a given investor.
As an investor, you are not protected from a decline in the value of securities purchased on your broker’s recommendations, but you may have certain legal rights if you lose money because you followed a broker’s recommendations that were clearly unsuitable based on your financial objectives and situation. Unsuitable investment recommendations are prohibited by Texas securities law and by Financial Industry Regulatory Authority (FINRA) Rules of Fair Practice.
A broker’s earnings are based on sales commissions and mark-ups. The more buying and selling a broker does for each customer, the higher his or her income.
Unnecessary buying or selling is called churning. Churning is prohibited by Texas securities law and by Securities and Exchange Commission (SEC) rules.
If you suspect that certain recommendations have been unsuitable or that your account has been churned, immediately contact FINRA and the Enforcement Division of the Texas State Securities Board. Although your initial contact may be over the telephone, you will be asked to document your complaint in writing. You should be prepared to list specific details of your investment, including dates, amounts, and types of securities. Often, copies of your account statements or other documents need to be attached to your complaint to better explain the situation.
It is a good practice to maintain a folder in which all investment documents and correspondence are kept. Always keep a copy of any complaint letters you send and the responses you receive. These documents can be of great benefit to you later.
You should also consider consulting a private attorney for assistance in resolving a securities dispute. While the State Securities Board and FINRA will investigate for violations of securities laws and rules, neither of these organizations will function as a collection agency. In other words, a broker who is sanctioned for a violation may not necessarily be forced to repay money you have lost. In some instances, the only way to recover your investment may be through a private lawsuit filed by your attorney.
