Dilemna Stocks & Bonds-Sorry Long

[marlasmom]

For the past 4 years we have done business with a highly regarded stockbroker in one of the major brokerage houses. He has had discretion to trade our accounts - although I have repeatedly asked him to consult with me. Actually, I have insisted on it. However, he does not consult with me as I have asked (demanded).

He has done ok - not tremendous although he insists it is tremendous. However, despite my saying repeatedly that I want and need INCOME and that the stuff he had is much too volatile for our age and life style, he has put $ into growth stocks. He did very well over the past couple of months, but in the past two weeks he has lost over $50,000, $16,000 in the past two days alone.

I sent him an e-mail this morning reiterating that I am very unhappy and questioning some of the things he has done. He has called me 3 times today. He says I was happy with the big increase, implying that I have no right to be unhappy because he lost so much of the increase and that we are still up over the beginning of the year. Finally, he is saying that he will do what I want and will fix everything. (Too little, too late I think) He also maintains that he is much too busy making $ for us to discuss trades with me.

On Thursday my sister's broker is coming to the house (an 80 mile drive for him and I hope I don't go with him just because I feel guilty about that but I think I will change to him.

To cut to the chase FINALLY, my present broker is asking that I write him saying my previous memo was not a complaint. I told him it WAS a complaint - that he had assured me he had removed everything volatile from my account and yet we had a $16,000 loss in 2 days and that's excessive in view of the total amount of the account - at least to my way of thinking. Apparently his "manager," although he is a senior vp, is very unhappy about the complaint and the broker wants me to soften it. My thinking is is that it should stand, especially if later there is some legal action involved - although I doubt there will be.

What do you think? Should I soften it, although I stand by my thinking, in order to save this guy's butt, or let it stand?

 

[mickeyfan2]

I would not soften the letter from you and ten I would stop his ability of trading for you. Sounds like he is churning to increase his commissions.

 

[KirstenB]

He doesn't have your permission to make trades but he's doing it anyway? At the least, his firm's compliance department should be concerned. You could register a complaint with the SEC.

Also it sounds like you prefer a conservative investment strategy, and he is not following your goals. Move your account away from this broker ASAP.

 

[Toby'sFriend]

what do I think?

I don't think you should give your brokers carte blanche to make unapproved trades on your accounts.

And when you say you directed him to remove everything "volitile" - did you actually use the word volitile or did you tell him security by security what you considered unacceptable for your portfolio?

 

[offwegotoneverland]

Plus you either have a broker with discretion to make trades or a broker who acts on your instructions alone or a broker empowered to trade up to X...you can't give him permission and then tell him to check with you.

Re the loss and the letter, don't change it..but do change brokers if your not happy.

I would try for someone more local to you however.

 

[marlasmom]

He did have an account that permits him to trade as he sees fit - but it is our money and if I ask him to check with me, he should. Our new broker will not have that ability.

I am changing brokers - it is difficult to find someone though. My major question to you folks is should I soften my "complaint?"

 

[devmer]

I would not tone down the complaint, in fact I would be talking to his boss about his actions. I saw a question similar to this one in a money magazine (I think). The person who answered the question said the broker who was handling the money gets a much bigger commision from the more risky investments than the safer ones. It sounds like you have talked to this man multiple times about what you want and he continues to do what he wants with YOUR money, most likely to benefit himself. I believe this is illeagle and he is probably doing it to other people as well. Talk to his boss and bring any documentation you have. Also I would let his boss know how long this has been going on. Personally I think you should get your money reimbursed by the company. He knows what he is doing is wrong that is why he wants you to tone down the complaint.

Dawn

 

[Toby'sFriend]

well truthfully I kind of agree with him that if you are up overall YTD, he isn't doing a terrible job. It sounds like you have a major communication problem in defining what he considers overally volitile, vs what you consider overally volitile.

Beyond that, I really can't comment because allowing a broker free reign to execute single stock or bond trades in my account without first notifying me and educating me on WHY that particular investment would be a good fit for our needs is just not something I'd ever consider giving a broker permission to do.

For the most part, if I don't have time to understand the trades, the financials, and the company behind the investment, I prefer to stick with mutual funds.

 

[Eeyore'sthebest]

Once you give your broker discretion to trade your account he does not need to check with you. Whether you like it or not, that's what happens. Sounds like you should shut the account down immediately. Request that the funds be wired to your own bank account. Or at the very least, put it in writing that you want his discretion revoked immediately. Send it to the broker and the branch manager. Just so you know, titles at the local brokerage level are usually based on commissions earned and don't necessarily equate to rank or level within the firm. The Senior Vice President title truly means nothing.

Second, the e-mail you sent to the broker is now considered a client complaint and will be logged appropriately with the firm's compliance department. Do not tone down anything if you do not want. Please do not do anything that you are uncomfortable with due to pressure from the firm. Should you ever agree to take legal action please read your brokerage account agreement. There is probably something in there that the complaint will be taken to binding arbitration. You can speak to the branch manager about any issues you have with the way the account was handled. Even though he did have discretion, he should have taken your age, income, and investment priorities into consideration.

Find yourself someone you are comfortable with. Do not give this person any trading discretion. Have the person call with trade recommendations that fit your investment priorities. Have them justify to you why the trade is appropriate. Its your money and unfortunately there are unreputable individuals out there.
Good Luck with everything.

 

[gina2000]

MM, by giving him discretionary control over your accounts, he doesn't have to consult with you concerning trades. That's what giving discretionary control means.

Specifically, you should have set up risk parameters when you set up the account. If you haven't, then he is not at fault. The other reality is that you may want greater income than a conservatively managed account can provide. Only you and your broker can decide if that's the case.

If he's been buying and holding and not trading to generate commissions, then he's not churning the account. If he's investing in volatile stocks or risky derivative products, there are always huge price swings. Your letter can only reflect dissatisfaction if he is investing in investment vehicles and/or low grade bonds that you do not have in your parameters. And that becomes criminal liability for the broker and his firm. That's why they want you to soften the letter so there is no inquiry into their practices.

If you have not set parameters, you really have no cause for dissatisfaction. He is working within legal guidelines. And be careful...you may have signed papers allowing him to trade futures, options and/or commodities. If he is trading those sorts of vehicles, you are invested in high risk investments. You need to know what you have signed and what he is invested your money in. And you need to set up guidelines if you already do not have them. The letter is irrelevant til you know these answers.

Good luck. And btw, brokers don't have to be physically near you to invest well for you. That's why God created telephones.

 

[offwegotoneverland]

He did have an account that permits him to trade as he sees fit - but it is our money and if I ask him to check with me, he should. Our new broker will not have that ability.

I am changing brokers - it is difficult to find someone though. My major question to you folks is should I soften my "complaint?"

On that part (re soften) no I don't think so. you had asked him to get rid of higher risk stocks and he clearly didn't.

But I will restate that you either give a broker persmision to trade as he sees fit or you don't you can't have it both ways and hold them to it...that's part of the reason it doesn't sound as if this is the best set up for your peace of mind.

I'm just not sure that the complaint will produce results for you, it may however have impact for someone else.

 

[Teejay32]

I really don't know, MM, because I don't know if your conservative income goal matches up with what he's been doing. Stock prices had a sharp drop just days ago, and you're not down for the year. You might have a different definition of "volatile" than he does. I think you should switch brokers for a few reasons, but I'm not sure about the letter.

 

[marlasmom]

He's not churning for commissions. He receives an astronomically high fee based on the value of the account. When we opened the account I told him moderate risk. I also told him we would not need any $ from the account for 2 years. It's been a little over 4 years and we have only taken out $2,000 at the rate of $500 per month but the time is coming when we will have to withdraw income


I believe I did set parameters when we opened the account and furthermore our needs have changed since we retired and I have told him that repeatedly. Strangely, he has called 3 times in the last hour to ask permission to sell stuff. He could easily achieve the income I want with conservative investments. He could buy treasuries for that matter.

I'm aware of his discretionary power, but is it too much to ask to be consulted occasionally - especially re our broad objectives and philosophies. The new broker will not have that power, but I worry about if something happens to me who will handle it?

 

[Chilehead Too]

I agree that by giving the broker discretionary control you give up being consulted on trades. Perhaps, you should retract the discretionary control and give the broker a chance with consulting. Sounds like he is making $ for you.. If you are up YTD then I would be happy. It too sounds to me like you are telling him how to do his job, maybe back off a little and see what happens. Like otheres have said you cannot have it both ways. ALso I honestly do not think it warrants a complaint to the SEC. no way

 

[Teejay32]

I'm aware of his discretionary power, but is it too much to ask to be consulted occasionally - especially re our broad objectives and philosophies. The new broker will not have that power, but I worry about if something happens to me who will handle it?

I've never heard of a broker that was too busy making money to consult with clients, that's why I think you should get a new one. But the only thing that suggests misconduct to me would having aggressive stuff in your portfolio.

 

[disneymom3]

I guess coming from the other side as my DH used to be involved in this industry many eons ago, it sounds like the guy thought he was doing his job. He had discretion and he was using it. I was at first suspicious if he was getting paid per trade, but it sounds like no so that takes that issue out of the question. I honestly would give the guy another chance after revoking his discretion to see how he does. Heck, in two days, he could "earn" you $20K, who is to say?

Of course, if your trust in him is gone, it is probably best to just start over. If I were as frustrated as you sound, I would probably have bailed out of there long ago.

 

[TheButlerDiditt]

Hasn't the market as a whole taken a downturn this month? I'd say as long as you're up overall, you should be happy.