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Countless investors have lost large
portions of their investments. Some have been in investments where
they lost everything. But investors looking for help in recouping
losses often find there are few places to turn for assistance. Read
on to learn about one investor that finally got justice.
Many an investor has been harmed by their advisor’s inaction or
being put in unsuitable investments. It’s natural that those feeling
wronged seek retribution. So, where do investors turn if they need
justice?
For securities investments such as stocks, bonds, mutual funds and
variable annuities, it’s to the National Association of Securities
Dealers (NASD). The NASD is a self-regulatory organization created
by the securities industry, not a government agency.
In 1987, the Supreme Court ruled that investors can be required to
waive their right to sue in court in order to open a brokerage
account. Now all grievances with a brokerage firm must first go
through arbitration
Fifty-five percent of arbitration cases rule in the investor’s
favor. But the average settlement is about 12 cents on the dollar.
It so happens that the judges (even those deemed to be independent)
are from the securities industry! No wonder brokerage firms prefer
arbitration!
It is a long, expensive process to pursue arbitration on an
individual basis. When you look at the average settlement, you will
be lucky to cover your legal expenses. Your chances can be greatly
improved, though, if you are one of many members in a group that had
similar experiences with the same broker or firm. Think of it as
class-action arbitration.
That’s how Bob finally got justice. He invested $750,000 in a
variable annuity recommended by an advisor in 2000. Three years
later Bob’s investment was only worth $350,000. When Bob became my
client in November of 2002, there was little recourse he could take.
About a year later, though, he saw an advertisement in the local
newspaper about a seminar just for those retirees of his company. It
was put on by an out-of-state attorney that specialized in handling
arbitration cases.
It turns out ‘Bob’ wasn’t the only victim. Many of his fellow
retirees used the same advisor that he did. Almost all had virtually
the same experience. Collectively, they were able to get more of the
attention they deserved during arbitration.
After 3 long years, Bob has received a settlement check for
$166,000. It doesn’t make Bob whole, but it sure helps ease the
pain. Bob was one of the lucky ones.
Guess what happened to the broker? Not much. There won’t even be any
hint of the problems he caused on his permanent record. That means
other investors will never know what this advisor did to ‘Bob’ and
his fellow retirees. That means it can happen to them, too.
You see, the advisor you use could have lost investors hundreds of
thousands of dollars and you will never know about it. There’s no
way to know if your advisor has had cases go to arbitration in the
past. There’s no way to know if he/she has any current cases in
arbitration.
So what can you do to protect yourself?
First, ask your advisor if they have ever had any written complaints
and/or cases that went to arbitration. Verify their answer and/or do
a broker check at www.nasd.com.
Second, find out how the advisor will monitor and manage your
investments on a day-to-day basis. Beware of the advisor that does
nothing. Look for an advisor that has specific procedures in place
to monitor and manage your account. Few do.
Third, make sure you have the ability to make changes should
something go wrong. That’s why I am so adamantly opposed to
investments that have long-time commitments or big surrender
penalties. They limit your options, making it expensive to switch
investments down the road.
Fourth, if you’ve been wronged, try to see if there are others in
the same boat. Search the internet for existing class-action
lawsuits and see if you can join.
Typically, the problem is the advisor, not the type of investment.
Use one that will prevent a significant loss from happening in the
first place. Bob was able to recover a portion of his loss. Justice
was served.
Have a financial question? Send me an email and I’ll personally
respond, free of charge. Go to www.guardingyourwealth.com and click
on ‘Ask Jeff’.
In addition to being a nationally syndicated columnist and Certified
Financial Planning Practitioner, Mr. Voudrie provides personal,
private money management services to clients nationwide. |
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