Broker Complaints Up

September 1, 2009
Michael Sheehan

Investors are projected to file 55% more complaints with brokerages in 2009 vs. 2008. If you do decide to proceed with a claim, understand that there are many hurdles to overcome.

In the wake of a market where just about everything has gone down, it’s not so surprising that the one thing that has gone up is complaints about brokers. Investors are projected to file 55% more complaints this year compared to 2008 and, although they still lose more than half the time, more are coming out on the winning side. Getting back some of your losses isn’t easy, however. One reason is that, back when you first signed up, you probably agreed not to sue to settle any disputes with the brokerage, but to go through private arbitration, a process that some say unfairly favors brokerages.

First figure out if you have a valid complaint. Your broker’s lousy market judgment may have cost you a bundle, but it’s not illegal. Unauthorized trades and making trades just to earn commissions, called churning, are examples of legitimate complaints. More common are allegations that the broker sold you investments that weren’t suitable for you or that he/she didn’t fully explain or misrepresented the risks involved. To back up these charges, it helps if you’ve kept the paperwork where you spelled out your investment goals and risk tolerance.

There are other hurdles to overcome. You’ll most likely need a lawyer and you may not find one willing handle your claim if it’s for less than $100,000. If you win at arbitration, the lawyer’s fee, anywhere from 30% to 40% of the award, will come off the top. Since awards are generally less than the claim, the bottom line for the winners is an average of less than half the original amount of the claim. Also, under current rules, at least one member of the three-person arbitration panel must have worked in the securities industry, which investor advocates claim stacks the deck against you.