Omar Bennett
A securities industry sales practice complaint can be filed with the SEC or a state securities regulator if an individual has a problem with an investment advisor, transfer agent, mutual fund company, or public company. Complaints can be filed with FINRA against brokerage firms and their employees, and sanctions may include fines, suspensions, or barring from the securities industry. FINRA Rule 4530 requires firms to report any securities-related written grievances and specified criminal actions, civil complaints, and arbitration claims. It is important to note that the decrease in investment value or loss of money does not necessarily indicate misconduct, as investments in most securities involve risks.
| Characteristics | Values |
|---|---|
| Report Type | Sales Practice Complaint Report |
| Report Frequency | Quarterly |
| Report Due Date | Within 15 days of the end of the calendar quarter |
| Report Availability | Approximately 6 weeks after the last business day of the quarter |
| Report Content | Trends in complaints with Sales Practice problem codes |
| Problem Codes | 20-Research, 21-Product Origination/Investment Banking, 22-Trading, 23-Poor Performance |
| Report Submission | Electronically via the FINRA Gateway |
| Report Examples | Criminal actions, civil complaints, arbitration claims |
| Report Jurisdiction | Brokerage firms, their employees and associated persons |
| Complaint Resolution | Contact the company, government office, consumer organization, or legal system |
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Poor performance
It is important to note that this problem code is specifically for complaints that do not allege specific sales practice violations, do not attribute damages to a research analyst's recommendation, and are not covered by other problem codes related to research, product origination/investment banking, or trading. For instance, if a customer's complaint is about the suitability of a recommended investment strategy, or the lack of specific recommendations, Problem Code 23 would not be applicable.
Firms must adhere to reporting requirements and submit these complaints to FINRA via the FINRA Gateway. This allows FINRA to investigate and take disciplinary action if necessary. However, it is worth mentioning that poor performance alone may not always indicate misconduct by the firm or broker. Investments in securities inherently involve risks, and there is no guarantee of profitability.
If customers have concerns about poor performance, they should first question their broker about any transactions they do not understand or authorize. If dissatisfied with the broker's response, they can escalate the issue to the firm's branch manager or compliance department. Customers should also retain copies of all relevant correspondence with the brokerage firm.
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Unauthorised trades
Unauthorized trades refer to the purchasing or selling of securities in a non-discretionary customer account without prior customer authorization. This constitutes a sales practice violation and is prohibited by the Financial Industry Regulatory Authority (FINRA).
Brokers and investment advisers typically need the consent of their customers to proceed with the purchase or sale of a security. This consent may be given orally or in writing. However, in certain circumstances, a broker or investment adviser may have written discretionary authority over an account, which grants them the legal right to buy and sell securities without the investor's prior consent. This authority is specified in the customer account agreement.
Unauthorized trading can occur when a broker executes a transaction without the investor's permission, believing it to be in the investor's best interest. This may happen if the investor has previously relied on and followed the broker's advice. A broker may also attempt to convince the investor to accept a trade retroactively or churn an account to generate more commission fees.
If an investor suspects unauthorized trading in their account, they should promptly review their account statements and complain to the broker in writing. Failing to do so may result in the broker arguing that the investor accepted the trade through their silence. If the investor is not satisfied with the broker's response, they can contact the firm's branch manager or compliance department.
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Misconduct
It is important to note that the decrease in investment value or loss of money does not necessarily indicate misconduct. Investments in securities often involve risks and there is no guarantee of profitability. However, if there is a transaction that is not understood or authorized, it is essential to question the broker immediately. If their response is unsatisfactory, the next step is to contact the firm's branch manager or compliance department.
In the case of a loss of money or an unauthorized trade, a written complaint should be made, and all correspondence with the brokerage firm should be retained. If the issue remains unresolved, a complaint can be sent to FINRA. This is done through their Complaint Program, which investigates complaints against brokerage firms and their employees. FINRA has the power to impose disciplinary actions, including fines, suspensions, and barring from the securities industry.
Problem codes are used to categorize complaints. For instance, Problem Code 23-Poor Performance is used when a written complaint is about the poor performance of an account but does not allege specific sales practice violations or attribute damages to a research analyst's recommendation. Problem Code 12-Poor Recommendation/Poor Advice, on the other hand, pertains to allegations about recommendations to purchase, sell, exchange, or hold securities. Additionally, member firms are required to report any written grievance by a customer with whom they have engaged in securities activities.
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Non-compliance
The Financial Industry Regulatory Authority (FINRA) is a key organisation that deals with complaints and has jurisdiction over most brokerage firms and their employees. FINRA investigates complaints against brokerage firms and their employees and can take disciplinary action, including fines, suspensions, and barring from the securities industry. The complaints are filed under specific problem codes, such as Problem Code 23-Poor Performance, which is used when a customer complains about the poor performance of their account without alleging specific sales practice violations.
To file a complaint with FINRA, investors should first question their broker about any transactions they do not understand or did not authorise. If unsatisfied with the broker's response, they should contact the firm's branch manager or compliance department. If the issue remains unresolved, a complaint can be sent to FINRA, and investors may need to submit relevant documentation and correspondence. It is important to note that the decrease in investment value or loss of money does not necessarily indicate misconduct, as investments in securities inherently involve risks.
Additionally, investors can also file complaints with the Securities and Exchange Commission (SEC) or their state securities regulator if they have issues with investment advisors, transfer agents, mutual fund companies, or public companies. These complaints can be filed through secure .gov websites to ensure the safe handling of sensitive information. Before filing a complaint, individuals should gather documentation about the sale of the product or service and first try to resolve the issue with the company.
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Inadequate disclosure
One common scenario involving inadequate disclosure is when brokers or brokerage firms fail to provide investors with complete and accurate information about the risks associated with a particular investment product. This includes instances where brokers may downplay or omit mentioning potential risks, such as market volatility, liquidity risks, or complex fee structures, that could influence the investor's decision. Investors have the right to receive comprehensive information about the risks involved in their potential investments to make informed choices.
Another aspect of inadequate disclosure pertains to conflicts of interest. Brokers and financial advisors have a responsibility to disclose any potential conflicts of interest that may influence their recommendations. For example, if a broker has a financial stake in a particular investment product or receives incentives for promoting certain investments, they must transparently disclose this information to investors. This enables investors to evaluate the impartiality of the advice they receive and make informed decisions.
In some cases, inadequate disclosure may also involve the misrepresentation or omission of material facts related to an investment offering. This includes providing false or misleading information about a company's financial health, omitting critical details about the terms and conditions of an investment, or failing to disclose relevant regulatory or legal issues. Investors rely on accurate and transparent information to assess the potential rewards and risks of their investments.
To address inadequate disclosure, investors who suspect misconduct or have concerns about the level of transparency in their interactions with brokers or firms should take proactive steps. They should immediately question their broker about any unclear transactions or unauthorized activities in their accounts. If they are not satisfied with the broker's response, they can escalate the matter by contacting the firm's branch manager or compliance department. Regulatory bodies like FINRA provide avenues for investors to file complaints and seek assistance.
To conclude, inadequate disclosure in the securities industry refers to instances where investors are not provided with complete, accurate, and transparent information about their investments. This includes withholding information about risks, conflicts of interest, or material facts relevant to the investment decision-making process. Investors who encounter such situations should take prompt action by first engaging with their brokers and then seeking assistance from relevant regulatory bodies to resolve their concerns and protect their financial interests.
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Frequently asked questions
FINRA is short for Financial Industry Regulatory Authority. It is an organisation that investigates complaints against brokerage firms and their employees. FINRA has jurisdiction over most brokerage firms and their employees and associate persons.
A securities industry sales practice complaint involves a written grievance made against a firm or an associated person. This could include a complaint about a transaction that was not understood or authorised by the customer.
Examples of prohibited conduct in the securities industry include unauthorised trading, poor performance, and poor recommendations or advice.
If you have a complaint, you should first question your broker or salesperson about the transaction. If you are not satisfied with their response, you can contact the firm's branch manager or compliance department. You may also file a complaint with the SEC or your state securities regulator. It is important to gather any relevant documentation and submit your complaint in writing.
