Notice some activity in your brokerage statement that you didn’t OK? While your instinct might be to organize a mob and firebomb your broker’s office, hold off on the pitchforks and torches … for now.
Here’s what you should do if you believe your broker has made unauthorized transactions under your name.
First, make sure that the trades your broker has been making are, in fact, unauthorized…
If you have a discretionary brokerage account, your broker is allowed to buy and sell securities without your consent — as long as they don’t go against the account agreement.
But if you’re dealing with a non-discretionary account, your broker is not authorized to trade without your consent.
Bottom line: unless you have a discretionary account, if you find unauthorized trades on your account, you have cause for concern.
Report the unauthorized trades
Start by contacting your broker to point out the unauthorized trades. Be polite … treat it like a clerical error and ask that the trades be reversed. Make sure to request that they confirm immediately that they are following through. Send your message to your broker and a superior in the firm.
If they call you on the phone and promise or confirm something, reply in writing with the details of the agreement.
If you’re dealing with a reputable brokerage house, the odds are good that it’s either a clerical error (AKA someone else’s orders were punched into your account) or a rogue trader. In either case, you should be able to get the trades reversed right away.
If you’re dealing with a less reputable company, you may have a bigger problem. If you don’t receive a satisfactory response within a couple hours of your message, try again — this time to the same people plus the compliance officer and the president of the brokerage company.
Let them know that if you don’t hear from them in short order, you’ll report the situation to the authorities.
Take it to the big dogs
Still no response? Notify the authorities.
We suggest writing the Securities Exchange Commission, your state securities regulator, the NYSE, or the National Association of Securities Dealers. Whichever you choose, make sure you include all previous correspondence and explain the problem clearly.
Finally, and most importantly, don’t keep your money with people you don’t trust!
If you have even a suspicion that your broker is ripping you off, get your money out of the account and find a new brokerage.