Investment Advisors (Stock Brokers/Financial Advisors)

The following situations would be cause to consider changing financial advisors. If you are damaged, they may also be grounds to recover damages. (To learn more, see: If A Stock Broker Harms You).

• Misrepresentation: The broker makes inaccurate or misleading oral claims or provides false written information.
• Churning: Frequent trades solely for the purpose of generating commissions. Courts look at a variety of factors, including the ratio of commissions to average account value. Churning can occur even if you approve each trade.
• Unsuitability: A broker has a fiduciary obligation to provide advice that is consistent with your age, goals, income and experience with investing. If you tell the broker about your health condition, it also has to be considered.
• Unauthorized trading. This type of trading breaks trust. It is also illegal.
• Failure to recognize break points. Break points are a dollar amount at which fees are to be reduced.
• Inappropriate investment suggestions. According to Bottom Line Personal, the following financial situations should send up a warning flag. They do not in and of themselves mean the advisor is acting for him or herself instead of you, but they do suggest you take the time to "trust but verify."
  • A brokerage firm's own mutual funds for which it charges a high commission. (You can compare commissions and returns mutual funds make in the sites listed in Survivorship A to Z's mutual funds document.)
  • An advisor suggests selling an investment that recently earned him or her a high commission. This is particularly so if the recommendation is to purchase another investment with a high commission.
  • Investments which have risk beyond what is reasonable for your health condition, age, income and net worth.
  • Investments with a guaranteed high return. The higher the return, normally the greater the risk. There is seldom a real guarantee when referring to a high return.
  • Municipal bond investments which have high transaction fees. Fees for buying municipal bonds are usually very low. You can get an idea of current fees by checking low cost firms such as:
    • Charles Schwab, www.Schwab.com  or call 877.563.7818
    • eTrade, http:://US.eTrade.com or call 800.387.2331
  • Investments in securities which are not publicly traded. While private investments can be very profitable, they are also very risky. They are also difficult to sell because there is no ready market.
  • Transactions when the investment firm is a "principal" - which means the firm is selling you shares it owns rather than merely acting as agent.