Tag Archives: Investments

Time To Return the Favor of “The Talk” With Your Parents

12 Monday Jan 2015

Posted by in Uncategorized

≈ Leave a comment

Tags

, , , , , , , , , , ,

As parents, there often are situations with children that necessitate a series of uncomfortable discussions, where questions must be asked and sensitive topics discussed. Regardless of what can be an awkward situation – – for both parents and the children, it is the responsibility of the parent to have the conversations. The phrase “I’m not here to be their friend”, is undoubtedly uttered on a daily, if not hourly or minute basis by parents.

But what happens when the proverbial shoe is on the other foot? What of the situation where it is the child, now an adult, that must discuss issues and raise questions to the parents; questions that are uncomfortable for everyone, but for the protection of the parents?

Nothing can make for a more uncomfortable conversation than a discussion about money with your parents. Unfortunately, like the “birds and bees” conversation you had decades ago, this is just as important. As our parents get older, there are times when their decision-making abilities are lessened, and the opportunity for someone to take advantage of them financially has increased.

It is not coincidental states have laws on the books that protect older investors. There unfortunately are people who will target such investors, knowing they can be worn down much more easily than others and will place their trust in strangers.

And now the uncomfortable conversation. Most likely, before having the “talk” with you, your parents prepared themselves. Just as they may have taken the time to bring the topic to you, you should do the same with them. Your parents may have spoken to your teachers or your friend’s parents; today there is nothing wrong with you having a conversation with your parent’s accountant to make sure at the very least the accountant is another set of eyes reviewing your parent’s investments.

When talking with your parents, start with basic conversation about where they have their money invested, but do so with an understanding of basic investing principals. Here are some basic terms and rules to help you out in the process.

First, Discretionary versus Non-discretionary account. A discretionary account permits the broker to buy and sell securities in your parent’s account without the requirement of speaking to them first. A non-discretionary account, which is the majority of securities accounts, requires the broker to speak to your parents before every single trade. Ask your parents about what their broker is recommending, and when your parents learn of the trade – before it is effectuated or when they receive their monthly statements?

The next point you should know about is suitability. A broker is required to comply with the Know Your Customer Rule. This rule requires the broker to know about your parent’s investment experience, net worth, liquid net worth, level of risk they are prepared to take in their investments and their primary investment goals. No trade may properly be recommended to your parents unless the broker takes each of the above points into consideration.

The strength and resolve of a parent is not being concerned about the awkwardness of a conversation, but rather protecting you. It may be time to return the favor.

The Law Offices of Barry M. Bordetsky represents customers and industry representatives in FINRA securities and employment arbitrations as well as litigants before state and federal courts. If you have questions about an issue you are involved with, please contact Barry Bordetsky at (800) 998-7705 or email barry@bordetskylaw.com.

The Starting Point Is Now

05 Monday Jan 2015

Posted by in Uncategorized

≈ Leave a comment

Tags

, , , , , , , , , ,

It’s the New Year, what is undeniably the greatest false start time of the year. People use the date as a starting point for something, whether it be starting a new hobby, starting a new business or simply reconnecting with old friends.

For investors, this is the time when they will be receiving a year-end statement from their broker-dealers. Often times this is the document provided to accountants from clients, to assist with the calculation of gains and losses for tax purposes.   For accountants, like the diet that your clients were always wanting to start but never did, many times investing clients are overwhelmed with the investing process and did not pay attention to their investment accounts as closely as they should have during the year. Now is as good a time as any for accountants to address the issue with their clients.

Upon receipt of the clients’ trading information, accountants may want to call their clients and pose the following form of questions: Tell me what you wanted to do with your account? What did your broker tell you before the trades took place? How many trades do you think took place in the account?

The answers to these questions will be very telling, the start of an understanding of what took place in the account. By way of example, if the client states she wanted the account to conservatively sit and grow with no activity, but there were thirty trades over the year, there is an explanation that should be received as to why the trades took place. Similarly, if the trading was unsuitable, or not in line with the client’s objectives (i.e., risk level, financial wherewithal, experience), then a stop should be put to the improper trading. Importantly, the suitability analysis takes place at the time of the trades, not at the time of the complaint, thus necessitating an immediate review of the trading.

On that note, unless the account is discretionary, brokers are required to speak to investors and receive specific authorization for every trade, buys and sells. If this did not happen, then there is a problem. In terms of the number of trades that took place, there comes a time when the trading in the account only makes money for one person – – and that is the broker. However, if the investor sits for years silently, riding the profits of the trading in the account and then complains years after the fact, such complaint may very well be looked at suspiciously as only a belated attempt to utilize the broker-dealer as an insurance company for market losses. By sitting silently, the investor may very well be waiving the ability to move forward on a viable claim. An investor has six years to file an arbitration claim against a broker before the Financial Industry Regulatory Authority (“FINRA”).

The New Year is a great time for accountants to work with clients and provide them with the necessary nudge to protect their investments.

The Law Offices of Barry M. Bordetsky represents customers and industry representatives in FINRA securities and employment arbitrations as well as litigants before state and federal courts. If you have questions about an issue you are involved with, please contact Barry Bordetsky at (800) 998-7705 or email barry@bordetskylaw.com.

Treat Your Brokerage Account Like Your Car? Absolutely.

01 Friday Aug 2014

Posted by in Uncategorized

≈ Leave a comment

Tags

, , , , , , , , , ,

Believe it or not, your car provides a perfect analogy of how you should handle your investment account and the broker working with you. Most people have little if any knowledge of cars or how they work. Similar to how you have your broker guide you with your investments, you bring your car to your local mechanic.

Cars receive oil changes every 3,000 miles, and when it is time for your oil change, you bring the car to the service station. When getting the oil changed your mechanic tells you instead of every 3,000 miles, you should get your oil changed every 500 miles.   This just doesn’t make any sense, but you decide to go ahead anyway, because in your mind, the mechanic is the one who does this work for a living, so he must know what he’s talking about.

Stop there. If it doesn’t make sense to you, chances are, you are right on point.  You don’t need to be an expert in the field to know when something is simply off.  First thing you should do: ask to speak to the supervisor.  This should be no different with your stockbroker.

The Financial Industry Regulatory Industry (“FINRA”) recently filed charges against the New York broker-dealer Newport Coast Securities and five of its current and former brokers, charging them of “knowingly engaging in a manipulative and deceptive and fraudulent scheme to churn the accounts of some two dozen customers to boost their commissions.” FINRA alleges rampant churning of customer accounts and other misdeeds that caused significant losses to retirees and other investors.

FINRA is taking action to correct the alleged wrongs of the firm and brokers, and if the firm and brokers are found to have violated both securities law and FINRA rules, there will be be heavy fines issued, as well as the possibility of suspensions and perhaps expulsions from the industry.   This action by FINRA is similar to what the district attorney’s office does with a criminal that steals money from someone.

The present enforcement action by FINRA relating to churning should be a warning to all investors, old and young. Churning is the act of over-trading an account where an exorbitant amount of commissions are generated from the trading.    By way of example, presume an investor has $100,000 in her account. The broker opens the account with a buy of $100,000 of Facebook stock. The broker then repeatedly sells, buys and then sells again the stock twenty times over a one-year period. Each sale is quickly followed by a repurchase.

When one of the sales results in a quick profit, the broker will undoubtedly call and tell you how happy you should be that he made you money on the trade. But did he? Here’s where the churning analysis comes into play. If the broker did not overly trade the position, but rather bought and held, the position would have grown with the market movement of the stock. Instead, the investor’s portfolio has decreased because the broker’s commissions on the buys and sells have actually eaten into the profits in the account, and in many cases simply decrease the portfolio value. The only parties making money on this trading are the broker and his firm.  This type of trading should raise questions – – questions that must be asked before allowing the activity to continue.  And like your mechanic, ask for the broker’s supervisor before things get out of hand with your account.

In addition to enforcement proceedings, FINRA provides investors the ability to bring a civil action against the broker and his employing firm through the arbitration process, a very condensed court-like action. Those who lost money from Newport Coast or any other firm through churning, or other improper acts and omissions, have the opportunity to seek a remedy on their own. Those investors get their proverbial “day in court” in an expedited arbitration process that streamlines both cost and time to have the merits of the claim heard by a panel of arbitrators.

The Law Offices of Barry M. Bordetsky represents parties in arbitrations involving churning, unsuitable trading and other investment related claims. If you have questions relating to investment issues, please contact The Law Offices of Barry M. Bordetsky by calling Barry Bordetsky at (800) 998-7705 or emailing at barry@bordetskylaw.com.