Customer Complaints

Does My Broker Owe Me Any Money?

Securities disputes can encompass a variety of investment vehicles including: stocks, bonds, stock options, variable annuities, mutual funds and managed accounts. Your investment losses may not be solely attributable to market forces, but could be the product of bad investment advice.

Common Scenarios

Below, are a few common scenarios where investment losses may be recoverable.

Unsuitable Recommendations: At the heart of most securities disputes is the complaint that the broker's recommendations were unsuitable. When making recommendations, a broker must take into account the customer's financial situation and needs. For example, it would be entirely unsuitable for a broker to recommend an aggressive stock portfolio to a retiree who is relying on his or her investments for income and support.

Stock Options: Many employees, faced with the daunting task of managing their stock options, look to full-service brokers to provide advice and strategies for exercising options and managing their highly concentrated position. The broker has a fiduciary duty to provide the customer with meaningful information about the different ways to protect the value of the employee's hard earned wealth. Such advice should include, not only the different ways to exercise the options, but strategies for selling the position or protecting it through an appropriate "hedging strategy." Employees have lost millions of dollars due to bad or inadequate advice regarding the exercise and management of their company stock options.

Variable Annuities: According to the NASD: "The variety of features offered by variable annuity products can be confusing. For this reason, it can be difficult for investors to understand what's being recommended for them to buy - especially when facing a hard-charging salesperson." Variable annuities offer a lot of costly features that are unnecessary for most investors and can reduce the return on investment. Variable annuity charges include: surrender charges, administrative charges, mortality and expense risk charges, and investment advisory fees. For many investors, particularly elderly ones, a variable annuity is a poor investment choice that can expose them to unnecessary market risk.

Mutual Funds: Most mutual funds can be categorized as: income, growth, balanced or aggressive. As with any investment, a broker has a fiduciary duty to ensure that any mutual funds recommended are suitable based on the customer's financial situation and needs. Some income funds that appear conservative may actually invest in riskier high-yield bonds ("junk bonds"). Additionally, mutual funds have several pitfalls. For instance, Class B mutual funds do not charge a front-end sales charge, but investors will have to pay a deferred sales charge ("Contingent Deferred Sales Charge" or "CDSC") if the funds are not held long enough--usually 5-7 years. Class A shares impose a front-end sales charge at the time of purchase, but offer a lower sales charge ("breakpoints") if the investor makes a large enough investment. A broker recommending mutual funds must adequately explain all of the fund's risks and features to the customer.

Hedge Funds: Historically, hedge funds were private investment pools for wealthy, financially sophisticated investors. Today, hedge funds and "funds of hedge funds" are being widely sold to a much broader pool of investors, including those that may not be able to bear the risks associated with hedge funds. These risks can include: (1) the use of leverage and other risky investment practices; (2) limited opportunity to cash in shares, including a "lock-up" period of one year or more; and (3) less regulatory oversight and controls.