The Financial Industry Regulatory Authority
(“FINRA”) released its 2018 Examination Findings Report on December 7, 2018. This examination report recounts specific
areas in which FINRA members are not measuring up to industry standards. So, if your investment advisers just sent to you
statements for your investment portfolio and you think perhaps it’s not what
you expected, then it may be because they engaged in some of the substandard
practices as identified by FINRA in this report. And if you have those
concerns, then it may be advisable to have a legal audit of your investment portfolio performed by experienced
securities industry attorneys.
Two significant areas that require better
accountability in the industry as highlighted by FINRA in its 2018 report are (1)
product suitability and (2) abuse of authority.
Product suitability is just what it sounds like. FINRA observed that investment
representatives continue to make unsuitable recommendations to retail investors
based on a number of factors, including the customer’s financial situation and
needs, investment experience, risk tolerance, time horizon, investment objectives
and perhaps most importantly liquidity needs.
And there are legal standards that apply to these factors. Time and time
again, for example, investment advisers put their clients into long-term
investments that makes them unavailable for their customer’s short-term
needs. If you think this applies to you,
then you should have a legal audit conducted on your investment portfolio.
Abuse of authority is also just what it sounds
like, namely customers give registered representatives authority to act on their
behalf and these advisers exceed that authority. This is usually seen in the form of
unsuitable or excessive trading, which FINRA observed in its report as a problem that continues in the industry. For example, FINRA found “situations where
some firms or registered representatives exposed investors to unnecessary risks
and firms had not established controls – including those to comply with
obligations under FINRA Rule 2510 (Discretionary Accounts) – to mitigate those
risks.” Those risks included some registered representatives exercising
discretion in their customer accounts without the customer’s prior written
authorization, exercising discretion after the authority to do so had expired,
and having customer’s sign blank suitability or new account forms. And, even if you provide authorization for your
representative to engage in discretionary trading, you should still have your
accounts reviewed at frequent intervals.
Again, if you think this may apply to you, a legal audit conducted on
your investment portfolio may uncover abuse of authority by your investment
adviser.
Author: Brian St. James
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