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May 2014 Archives

Is Your Broker Honest?


After incidents like the Bernie Madoff scandal, it is extremely hard for investors to trust their brokers. There is no real or possible way to tell if your broker is being 100% honest with you. The Public Investors Arbitration Bar Association (PIABA) recently criticized the Financial Industry Regulatory Authority (FINRA) for the measures they're taking to protecting investors from potentially dishonest brokers. PIABA believes that FINRA's safeguard, BrokerCheck, is not enough. Critics believe that BrokerCheck should be more comprehensive and include more specific details such as criminal record, terminations, liens, and bankruptcies. Some believe that BrokerCheck would be more helpful if it provided an actual full disclosure of a broker's complaint history. FINRA defended BrokerCheck by saying, "While BrokerCheck is not perfect, FINRA remains committed to improving the system to help investors obtain free, unbiased information about investment professionals and firms."

SEC Allowing Third- Party Review Site Testimonials

Many brokerage firms and advisors have been experiencing difficulty with clashes between social media endorsements and the Securities and Exchange Commission (SEC) Rule 206(4)-1. This rule deals with testimonials and previously did not provide enough guidance to clearly outline protocol for social media sites and other third party review sites. The SEC has come to the conclusion that an advisor is not violating the testimonial rule when a client posts a review on a review site as long as the commentary is complete and cannot be changed or altered. The SEC also decided that if a review site has an average score (i.e. four out of five stars) the advisor may cite that rating on their website or on other advertising media. The SEC will not hold an advisor accountable for any positive reviews as long as the third-party review site is completely independent from one another.

Ameriprise Financial Ordered to Pay Elderly Couple $1.17 Million

A FINRA arbitration panel ordered Ameriprise Financial Services Inc. to pay $1.17 million to an elderly couple after advising them to invest their retirement savings in speculative real estate investments. According to the award, Ameriprise had advised the couple to invest over $1 million of their retirement savings into three tenant-in- common real estate investments. The couple invested in these risky investments in 2008 and since then one completely failed and the other two had a steep decline in value. This caused the couple to lose almost their entire life savings.

FINRA sees an Increase in Case Load

The Financial Industry Regulatory Authority (FINRA) announced that the number of first quarter filings has increased from last year. According to FINRA, 1,011 cases were filed in this year's first quarter compared to last year's first quarter which was only 919 cases. Some believe the heavier case load to be attributed to the Puerto Rico municipal bond collapse. To help prepare for the increase, FINRA has increased its pool of arbitrators. As of right now there are about 6,375 arbitrators, which is broken down between public (3,547) and non-public (2,828). Most cases are heard by a three person all-public panel.

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