How To Know If Your Broker Is Cheating You

How To Know If Your Broker Is Cheating You

Nov 12

There’s always a suspicion when returns come back lower than expected when the market does well but your portfolio is stagnant, and especially when that portfolio collapses, that your broker has done something wrong. Often times, what is wrong is simply a matter of a misreading of the market. Such human mistakes happen all the time, and little can be done but to shrug and remain philosophical about the market enterprise.

At other times, though, and this is more common than people believe, a broker can be cheating you. But how can you know if your losses are normal or due to the illegal actions of your broker?

Unsuitable investments: A broker is required to look for investments that are suitable for his or her client. That does not mean they have to be the best possible investments, but they have to pass a certain test of being reasonably suitable. If your portfolio doesn’t look reasonable to you, see a lawyer.

Misleading information: If your broker sold you on an investment by giving you incomplete information or even misleading information, you certainly have a case. If you suspect this may have happened, again, see a lawyer about your options.

A lack of diversification: A broker’s job is to develop a diverse portfolio for you which protects you from all but the worst kinds of drops in the market. You should not be overly invested in a single company’s stock, in a single asset, or in a single set of bonds. If your broker has done this, and you are suffering the financial consequences, there has certainly been some wrongdoing done there.

Churning: This is when a broker sells excessively in order to earn more commissions. These sales are not done in your interest but simply to line the broker’s pocket. If you are seeing a high volume of transactions in your portfolio while also seeing your value decline, you should certainly see smoke and suspect fire.

Unauthorized trading: Ultimately, your investments are yours, and it is up to you to agree to the recommendations of your broker. If your broker has taken it upon himself or herself to make these choices for you, and especially if they prove to be bad choices, you have the right to demand compensation back.

These are just a few of the potential ways a broker can be abusing the relationship between the two of you. I encourage you to read further on the Erez Law website to find out more.

In the meantime, remember to keep a close eye on your portfolio. While it is tempting to simply trust a broker to know what’s best and to assume the best choices are being made, you don’t want to get caught with a losing hand when it comes to your finances.

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