A Stitch in Time Saves Nine

~ By Gerald Rome, Colorado Securities Commissioner ~

I get it, all the paperwork that comes in the daily mail, along with all the junk mail, can get overwhelming. Often it’s even tempting to simply chuck the documents from your financial adviser onto a pile or into the garbage. But we all know there is much truth to this old saying – a little effort expended sooner to fix a small problem prevents it from becoming a larger problem requiring more effort to fix later. And it applies to your financial information. Monthly account statements are important to review, as you can ensure that your investments are performing as hoped, but also to make sure that you are not experiencing excessive or unauthorized trading, or that you are not incurring excessive fees in your account.

Unauthorized trading involves the purchase or sale of securities without the investor’s knowledge or consent. While worrisome in their own respect, they may also point to the beginning stages of a securities fraud case. If you have not authorized your financial planner to make trades that are showing up on your account, then immediately contact the branch manager of the brokerage firm, and then follow up with a call to the compliance department. It may also be a good idea to put your refusal of the trade in writing, and send a letter to the compliance department as well.

Frequent trading, while in some forms legal and common, has started to draw more attention from regulators. Some firms participate in high frequency trading, which utilizes computerized trading to quickly collect information from markets and rapidly buy and sell shares. This practice, while risky, is different from what is known as “churning,” or excessive buying and selling of securities in order to generate commissions. Pay attention to what kind of trading you have agreed to, and if you become uncomfortable or suspicious with the amount of trades being made in your account, contact the firm right away.

Gerald Rome, Colorado Securities Commissioner

Gerald Rome, Securities Commissioner

Also be mindful of excessive fees whenever you begin or renew an agreement with a broker. All firms are required to disclose their fees up front, or anytime they change their fees. Then, in addition to watching for high fees from unnecessary trades, be on the lookout for fees built into the agreements that are unreasonable or unfair. Check for high handling or transfer fees for trades (firms have been fined firms for fees in excess of $65 per trade), and also keep an eye on any miscellaneous fees that may be listed. Some examples of miscellaneous fees include those charged for providing securities in certificate form, fees for “inactive” accounts that don’t make frequent trades, or even fees for mailing paper statements. While these are not unlawful in themselves, they are meant to offset costs, and not as revenue sources for a firm.

So remember, when you receive your account statements, don’t toss them aside. Take a few minutes to review them with a critical eye. If you do, you’ll set yourself apart from many of our unlucky victims who went far too long without noticing the signs that their savings and investments were in jeopardy. If you ever have questions or concerns regarding a statement, give us a call at the Division of Securities at 303-894-2320, or file an online complaint at http://www.dora.colorado.gov/dos.


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