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Ready to cry 'foul' against your financial adviser?

The lengthy stock market downturn has knocked the stuffing out of almost everyone's portfolio, and a lot of the trust out of the financial landscape.

Many investors who cheerfully took their broker's or financial adviser's advice back in those heady days of the bull market when the money was rolling in are suddenly wondering if they were led astray, now that the profits have disappeared.

"There's always a correlation between the direction of the stock market and how many complaints there are," says Ken Andrichik, vice president of dispute resolution at the National Association of Securities Dealers. "The drop in the market has highlighted problems in accounts for investors."

You might have a case if ...
Unfortunately, you can't blame someone else just because your portfolio lost money. Even if you relied on a broker or adviser's advice, you may not have a claim. But, if you believe your broker or adviser defrauded you, you should file a complaint.

Andrichik says the most common allegations involve misrepresentation and unsuitability.

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Misrepresentation is an untrue representation or omission of facts relating to an investment. The client believes they were told one thing and finds out later what they believed they were told may not be the case.

Unsuitability is an investment that isn't consistent with the customer's investment objectives. An adviser recommends a high-risk investment for a client who has a low-risk tolerance.

Protect yourself
What can you do if your portfolio loses money and you believe fraud or deception played a role?

Complain, in writing, to your broker or adviser immediately. Be very specific, and send copies of documentation. If you don't get a satisfactory response, contact management. If that doesn't work, it's time to file a formal complaint with governing boards or regulatory agencies.

If your complaint is against a stockbroker, you can file with the Securities and Exchange Commission or the NASD. Both Web sites have a wealth of information taking you step-by-step through the complaint process.

If your complaint is against a financial planner, you can file with the SEC. If the planner is a certified financial planner, you may also complain to the CFP Board of Standards.

The SEC evaluates complaints, conducts investigations and counsels investors about possible remedies. The agency also takes legal action against individuals or firms that violate federal securities laws.

The CFP board investigates complaints and presents cases to a professional review board. The board can only enforce the code of ethics. It may censure or suspend a CFP, or may revoke the planner's right to use the CFP trademark. It can't stop a planner from doing business.

The NASD investigates cases and offers mediation and arbitration services. It has the power to take action against firms and individuals.

In addition, every state has a division that handles complaints against brokers and financial planners.

All of these avenues may involve fees. You may also be advised to have an attorney represent you in some instances. Of course, you can always hire an attorney from the start to get the wheels of justice spinning in, perhaps, a faster but more costly fashion.

Before you hire
But the best route is to avoid this altogether. Before hiring a broker or financial planner, take your time. Do some homework. Make sure he or she knows your goals and your risk tolerance. If you're not comfortable -- if they don't seem in tune with you -- don't hire them.

The flip side of that is if they're not comfortable with your investment style, they shouldn't take you on as a client.

"If a client says they want to be aggressive, I say, 'Thanks, you're better off at a different firm,'" says Morris Armstrong of Armstrong Financial Strategies in New Milford, Conn. "We look at what's suited for someone's risk, and one thing we don't take into account is dumb luck. Nobody likes to lose a potential client, but you don't have to accept everybody as a client."

Be honest with your broker or adviser. If they suggest an investment that you don't understand, say so.

Armstrong also advises taking good notes of meetings and phone calls, and keeping all documentation pertaining to the account.

"If there's a dispute, it's 'he said, she said,' but the person with the good records often has more credibility."

The CFP site also has helpful information on finding a planner -- questions to ask, and your rights as a client. The site also allows you to research individual planners to see what, if any, actions have been brought against them.

NASD has a "public disclosure" search engine intended to help investors decide whether they want to do business with a particular broker or firm.

The SEC has a similar page that allows you to check the background of brokers and advisers.

The bottom line is your portfolio is your future -- don't hand it to just anyone.

-- Posted: July 16, 2002

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See Also
Is your mind making you lose money?
Financial adviser titles
10 questions to ask prospective financial planners
Investing glossary
More investing stories

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