Broker Complaints…You’d Never Know It

Posted on October 21, 2013 at 11:49 AM PDT by

You’d think it would be easy to find broker complaints when an advisor or broker has left a string of unhappy customers behind.

Not so much, it turns out.

A report in The Wall Street Journal has the shocking facts: In more than 90% of cases, stockbrokers were able to remove customer complaints from public records in cases that settled before an arbitration hearing.

broker complaints

Of the ones that moved on to a hearing, nearly half were able to scrub their records afterward.

In a separate report, the Journal detailed how problem brokers move from firm to firm, walking away from arbitration awards against them and picking up work in a new shop across the street.

Imagine how this might play out if we were talking about doctors. Your surgeon could be a ham-handed bozo and you wouldn’t know it until well after your appendectomy was over and the damage done. Nobody would stand for it.

The stockbroking business is regulated by, well, itself. The group responsible for oversight is the Financial Industry Regulatory Authority, or FINRA.

They do some good things, such as making the real cost of mutual funds publicly available.

Investors, however, should learn to watch out for themselves. Here are some important steps to consider when vetting any financial advisor you might hire:

1. Forget fancy designations

Advisors and brokers like to tout professional certifications, such as CFP or CFA. These titles only mean that they’ve taken and passed specific exams. What you really need to know is, are you a registered investment advisor (RIA)?

If so, they answer to a higher standard set by the government, namely, the fiduciary standard. In short, they are required by law to put your interests first. The folks over at Investor Junkie recently explained the differences well.

2. Get references

Your advisor or broker should be able to provide you with the names and phone numbers of three clients who are willing to speak to you about their experiences.

You’ll probably get fed the advisor’s absolute best clients, but that doesn’t mean they won’t be critical — if you ask the right questions. Find out how long they’ve been a customer (you want years, not months) and how often they speak to the advisor directly.

3. Beware high pressure calls

If you start into a relationship and find your broker is calling daily to get you into a stock, that’s a red flag. You want good advice, not an opportunity to help them meet their sales quota for the month.

You should expect a broker or financial advisor to be polite, thoughtful and have your interests at heart. If you don’t have that feeling, it may be time to reconsider the relationship.