Big losses have left investors infuriated.

Not sure of whom to blame, some have pointed fingers at their financial advisors.

Either citing that their advisors ignored their instructions or, more importantly; disregarded their risk tolerance. The result of this has seen arbitration cases against brokers up 110% last year (2008).

Filing for arbitration is not end of all means for investors, though.

How To File Complaint Against Broker

Pursuing a case requires pain staking proof and even winning doesn’t mean that you will be made whole. Typically, investors will only recover 40% of their money.

If you are looking to fight back, here’s what you need to know.

First, we need to look at what a financial advisor can or cannot do.

Financial Advisors Can:

  • Can make recommendations about specific investments.
  • Can buy and sell those securities for you.

Financial Advisors Cannot:

  • Cannot make unsuitable recommendations based on your risk tolerance and investment history.
  • Cannot making trades without authorization unless they have discretion.
  • Cannot make misrepresentation or omission about investment they are recommending.

How can you protect yourself from an unscrupulous broker?

There are have been many high profile cases of late (Madoff, Stanford) that have left investors wondering how  they can really protect themselves. Unfortunately, in the Madoff case there was no protection; at least with background checks. In that case, the old adage of “If it sounds too good to be true…..” applies like no other. But that’s a story for another day. If you feel like there has been a wrong committed, follow these steps:

1. Try the Advisor

317ASP879-43301682Sometimes there can be a breakdown in communication. If you are questioning a trade, or something doesn’t quite match up on your statement, give the advisor a call. There could be simple explanation and resolution to the matter.

Before calling, make sure you have all the proper documentation in front of you (i.e. confirmation statements, brokerage statements, concerns you have written down). That way you have all the facts on hand in case you don’t get the answer you are seeking. This documentation will be that much more important as we proceed through the next steps.

2. Talk to Branch Manager or Compliance Department

If speaking to your advisor doesn’t get you the answer you are seeking, then work up the chain of command. Next step will be the branch manager or the firms compliance department. Typically, the branch manager will be forced to resolve the matter in a timely fashion.

If that doesn’t work, you could call the compliance department of the firm.  The more detailed you can be, the better.   Especially, if you are looking for a quick resolution to the matter.

3. File Complaint With FINRA

After you’ve exhausted all your means with the investment firm, you now have the option to filing a complaint with The Financial Industry Regulatory Authority (FINRA). FINRA makes it simple to file a complaint by having an online form you can complete. Before you file, they will ask you if you have completed the following steps: Before you proceed:

4. File Arbitration

Arbitration can be a long and painful process. According to FINRA’s website, as of March 2009 the average arbitration case is resolved in 11.8 months with simplified decision being resolved in 6.9 months. If you feel you have a case though, it is most likely worth your time in the end. Especially, if the broker deserves it. Below is taken directly from the FINRA website. You can also read more about the overview of the arbitration process.

Although most business in the securities industry is completed without a problem, disputes and controversies will occasionally arise. Such disputes and controversies can be resolved by impartial arbitration at one of the organizations listed in the services directory. Arbitration’s are conducted in accordance with the Uniform Code of Arbitration (Uniform Code or UCA) as developed by the Securities Industry Conference on Arbitration (SICA) and the rules of the sponsoring organization where the claim is filed.

There are some differences among the rules of the sponsoring organizations, such as, the time to serve and file answers to claims, who may serve as public arbitrators, arbitrator selection methods, service of award methods, the availability of prior awards, and whether your name will be made publicly available. Any questions regarding arbitration may be addressed to the Directors of Arbitration or their staff at the sponsoring organizations.

Significant differences between the Uniform Code and the procedures of the self-regulatory organizations (SROs) will be highlighted in this guide. In addition to initiating an arbitration, investors may file their complaints with the appropriate regulatory authorities, such as the Securities and Exchange Commission (SEC), state securities commissions, or one of the SROs listed in the Services Directory, when they believe there has been fraud or that other investors may be at risk. The regulatory agencies may then investigate the complaint and, if warranted, censure, fine, or suspend a wrongdoer.

These agencies normally do not recover investor’s losses which can be done through arbitration. This information is designed to assist prospective parties and their attorneys by explaining arbitration procedures and is not designed to give legal advice to any party or to anyone who contemplates use of these procedures. The procedures were developed for parties who represent themselves in an arbitration proceeding as well as those represented by counsel. The information here explains the procedures set forth in the rules and answers questions regarding them but is not an interpretation of, or a substitute for, the rules. We recommend that prospective parties carefully read the rules.

5. Consult Securities Law Attorney

FINRA Dispute Resolution staff members are often asked to make recommendations or referrals regarding legal representation. Since FINRA operates in a capacity as impartial administrators of this alternative dispute resolution forum, rather than specific recommendations, they can only offer the following guidance:

For general information on obtaining legal assistance, we suggest you contact your state, county, or city bar association. The American Bar Association provides a lawyer referral service to help individuals find the appropriate help for their legal problems. You can learn more about this legal referral service by visiting the American Bar Association or by calling (800) 285-2221. If you need help in finding a lawyer, you can review the guidance provided by the Securities and Exchange Commission (SEC). The SEC Web Site offers information about bar.

How To Prevent

70% of all investors do not do a background check on their advisor before hiring them. DO A BACKGROUND CHECK!

Much of this could have been prevented had some safety measures been put in place. The first thing that you MUST DO before hiring a financial planner is conduct a background check. A startling figure shows that 70% of all new investors do no such check. That statistic amazes me. Here’s a list of the following sources you check to see if your financial planner has anything on his record:

Other Resources:


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