Arbitrator, Broker, Broker-Dealer, Brokerage Firm, FINRA, NAF, New Account Form, Stock Broker, Stock Market Losses, Suitability, Trading Objectives, Unsuitable Trade Recommendations
When opening a brokerage account with an investment firm (referred to as a broker-dealer) and its employee (the broker), there is one critical document that will act as the roadmap, the starting place, for a broker to know what is an appropriate trade recommendation to you. That document is called the new account form, or NAF. In many instances, a brokerage account is opened without ever meeting the broker.
Chances are when you had your first conversation with your broker, she asked you several questions. These questions ranged from gathering your contact information (legal name, address, telephone number, email address), your financial wherewithal (net worth, cash holdings, holdings in other securities accounts, value of property owned) to questions relating to the trading you are looking to conduct (your experience in the industry, your objectives for the account, the amount of risk you are willing to take in the account).
During this call the broker is most likely inserting the information into the computer that will generate the NAF. This document is then sent to you with a cover letter asking you to review the information contained on the document, and if the information is accurate, to sign confirming as much and return the NAF to the broker-dealer.
Do not discount the importance of this document.
The NAF is the document that will initially be utilized by the broker-dealer to supervise the broker and the trading in the account. This information is so important that in many instances, above the signature block, in bold and capitalized letters reads the following: I HAVE REVIEWED THE INFORMATION ABOVE AND CONFIRM UNDER PENALTIES OF PERJURY THE INFORMATION IS CORRECT. It is this document that will be primarily utilized by the broker to determine the recommendations to you. Similarly, this is the document used by an arbitrator or court to determine whether the recommendations made from your broker to you were unsuitable.
If you provide information on the NAF that is not accurate, you put yourself and more importantly your money at risk. Your broker will be making recommendations based upon false information you confirmed on the NAF to be true that do not accurately portray what you need, let alone what you want for your investments. An investor will have a difficult time seeking to recoup the loss of his purported life savings of $30,000 when the NAF indicates a seven figure net worth. Similarly, if the trading was aggressive and in line with an aggressive objective set forth in the NAF, the investor will have difficulties convincing an arbitrator or court “what I really meant was conservative, not aggressive.”
There is no reason to be embarrassed by your lack of experience in the market or your net worth; indeed, this is probably the very reason why you are using a broker instead of investing on your own. Give your broker every opportunity to work for you, not unknowingly against you. By providing your broker false information, you significantly diminish your chances of recovering losses from unsuitable trade recommendations.
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 firstname.lastname@example.org.