Skip to main content

Menu

Representing Individual, High Net Worth & Institutional Investors

Offices in Indiana and New York City

317.598.2040
212.837.7908

Home > Blog > Monthly Archives: January 2019

Monthly Archives: January 2019

Protection of Senior Investors to be a Regulatory Priority in 2019

On January 22, 2019, FINRA released its “2019 Risk Monitoring and Examination Priorities Letter” which identifies topics that FINRA will focus on in the coming year.

One of FINRA’s top priorities in 2019, that was identified in this letter, is the protection of senior investors which most often refers to those individuals who are 65 years of age or older as well as investors who are retired or approaching retirement.

As noted by FINRA, this issue “remains a top priority for FINRA and we will continue to focus on how firms are protecting such persons from fraud, sales practice abuses and financial exploitation.”

In addition, “FINRA will assess firms’ supervision of accounts where registered representatives serve in a fiduciary capacity, including holding a power of attorney, acting as a trustee or co-trustee, or having some type of beneficiary relationship with a non-familial customer account. In particular, we are concerned about registered representatives using their role as a fiduciary to take control of trusts or other assets and direct funds to themselves.”

As a key component of its regulatory oversight role, “FINRA will assess the supervisory systems firms employ to place heightened scrutiny over such accounts.”

If you are a senior investor who has any concerns about your investments with any brokerage firm, please contact us for a no-cost and no-obligation evaluation of your specific facts and circumstances. You may have a viable claim for recovery of your investment losses by filing an individual securities arbitration claim with the Financial Industry Regulatory Authority (FINRA).

FINRA Will Focus on Suitability of Investment Recommendations in 2019

On January 22, 2019, FINRA released its “2019 Risk Monitoring and Examination Priorities Letter” which identifies topics that FINRA will focus on in the coming year.

As always, suitability remains one of FINRA’s top priorities in the coming year.

Some of the specific areas on which FINRA may focus in 2019 include: (1) deficient quantitative suitability determinations or related supervisory controls; (2) overconcentration in illiquid securities, such as variable annuities, non-traded alternative investments and securities sold through private placements; and (3) recommendations to purchase share classes that are not in line with the customer’s investment time horizon or hold for a period that is inconsistent with the security’s performance characteristics (which could include, for example, a recommendation to purchase and hold a security that is intended for short-term trading or to engage in short-term trading in products designed primarily for long-term holding).

In addition, as the exchange-traded product (ETP) market continues to grow with novel and increasingly complex products, FINRA will evaluate whether firms are meeting their suitability obligations and risk disclosure obligations when recommending such products. These include leveraged and inverse exchange-traded funds (ETFs), floating-rate loan ETFs (also known as bank-loan or leveraged loan funds) and mutual funds that invest in loans extended to highly indebted companies of lower credit quality.

FINRA also noted that it remains concerned about securities products that package leveraged loans (e.g., collateralized loan obligations). Although these products are typically sold via private placement to qualified institutional buyers, firms that may be selling them to retail investors will be subject to review as to how such firms are supervising such transactions to ensure their compliance with applicable sales restrictions.

If you are an individual or institutional investor who has any concerns about your investments with any brokerage firm, please contact us for a no-cost and no-obligation evaluation of your specific facts and circumstances. You may have a viable claim for recovery of your investment losses by filing an individual securities arbitration claim with the Financial Industry Regulatory Authority (FINRA).

“HOW TO CHOOSE THE RIGHT FINANCIAL ADVISOR”, was featured in the IBJ and written by our own Mark Maddox

Selecting a good financial advisor is one of the most important financial decisions life requires you to make. If you blow this one, it can cost you and your family lots of money and require you to work well into your golden years. Getting this decision right will help you live happily ever after.

At the beginning of the process, you should be introspective and try to honestly evaluate yourself, your abilities, and the time you are willing to devote to your financial affairs. Then decide how much advice you need. If you are a somewhat knowledgeable financial person, lawyer or CPA, perhaps all you need is to consult with an advisor periodically on an hourly basis to fill in the gaps of your knowledge (like estate or tax planning) or to use as a sounding board for your own investment ideas. If you go this route, you will need to be very attentive to your financial affairs and make notes of questions to be asked at your next consultation. Be prepared to spend $250-$500 per hour for this type of relationship.

Perhaps you are someone who doesn’t know or want to know much about investing, and don’t have the time to devote to regularly watching your investments every week. You need an asset manager. There are lots of different names for potential asset managers that include stockbrokers, investment advisors, financial planners, and insurance agents. It is very important for you to understand the types of professional licenses and designations held by your prospective advisor. For example, someone who is only an insurance agent can only sell you insurance products to address your financial needs. In many investment situations, you don’t need another insurance product but that is all the agent can sell. Investment advisors and stockbrokers can usually sell you a wider variety of investment products and advice, that in theory should be more appropriate for you than just insurance products.

The biggest sin regularly committed in the investment business is not being totally honest with the investor as to how the advisor is compensated. Why the mystery? Perhaps someone is concerned that if the investor is clearly told how an advisor is paid, you will question whether a recommendation is more in the interest of the advisor than the investor. If you are doing your job as a careful investor, you will ask about compensation in your first meeting with a prospective advisor (and almost every subsequent meeting) and always keep an eye on it to confirm what you have been told. Here are the options. If you are a somewhat sophisticated person and only need the hourly advice discussed above, then you pay the agreed to hourly fees. If you have sought a comprehensive financial plan from an advisor, you might pay a fixed fee between $2,500-$10,000 for such a plan. If you are buying one or more investment products from an advisor, you might pay a commission for each transaction. Commissions vary widely and can be as low as $10 per trade at a discount brokerage firm to as high as 10% of the principal dollars invested. Know what you are paying on each transaction! Many investors have experienced severe heartburn as a result of advisors making recommendations to line their own pockets with commissions at the expense of the investor. Finally, the industry trend for many years is to manage assets on a fee-based model. Depending upon the total dollars you have to invest, this annual fixed fee can be as low as half of one percent to two percent of assets under management. The fee-based approach usually puts the investor and advisor on the same side of the table and results in much less funny business perpetrated by advisors. This approach should be seriously considered by most investors with significant assets.

Before doing business with a prospective financial advisor, you must check them out. First, go to the website www.brokercheck.com and look for any negative signs. A clean record is a good thing. Red flags should arise if you see a history of customer complaints, personal bankruptcies filed by the advisor or various liens or judgments. Prior regulatory actions should also cause you to look elsewhere for advice. You should also check the advisor out on the internet. Go to your favorite search engine and see what comes up.

Finally, you must feel like you have a good fit with the advisor. Listen to your gut. If there is something in an initial or subsequent meeting that causes you to wonder if this is the right person for you, go somewhere else. Someone who talks way over your head and doesn’t connect shouldn’t be your advisor. There are too many other fine choices in this industry. I hope you find one.


Top of Page