Saturday, September 28, 2002

Personal Finance

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        Who do you blame for your brokerage account falling off a cliff in the past year? Your broker?

        If so, you might be able to join a record number of investors pointing their fingers at the professionals, and hoping to make them pay.

        Forget the lawsuit, however. When you opened the brokerage account, you almost certainly signed a statement promising not to sue, but instead to take disputes to arbitration.

        But that doesn't mean you can't win.

        According to the National Association of Security Dealers, the self-regulating organization that handles most arbitration cases, 57 percent of decisions so far this year are going in the customer's favor. That's up from 53 percent in the last two years.

        A total of $104 million has been awarded to customers in 2002.

        But that also doesn't mean that just because you lost money, you have a case.

        “It's not unusual to have lost a lot of money,” said Rick Ryder, editor and publisher of Securities Arbitration Commentary, a newsletter tracking judgments and awards.

        To win at arbitration, you have to prove the broker did something wrong. Just losing money for you — especially in a bear market — doesn't cut it.

        According to the NASD, arbitration cases this year are up 10 percent, and projected to total 7,524 by the end of the year.

        Most of these cases accuse brokers of putting their clients in unsuitable investments, misrepresenting an investment or otherwise breaching “fiduciary duty.” That simply means they weren't looking out for their clients' best interest.

Beware of churning

        So how do you know if you were given unsuitable investments or simply lied to?

        One sign might be heavy commission payouts, Mr. Ryder said. They might signal your broker “churned” your account, or bought and sold simply to generate commissions.

        Mr. Ryder said the following factors usually are also red flags:

        • If you relied wholly on your broker for investment decisions.

        • If he or she put a large concentration of your money in one investment.

        • If that investment was inconsistent with your objectives or risk tolerance.

        A retiree shocked to find that half his life savings evaporated with Enron would likely have a case.

        But you can't hold your broker liable for failing to talk you out of letting it all ride on Enron. But in a time when major indexes are down 30 percent year-to-date, you also need to prove that your losses were special, and not just the result of a bear market.

        “The likelihood is you'll be sitting in front of an arbitrator suffering their own losses,” Mr. Ryder said. “What's different? What happened to you versus everyone else?”

        More information about NASD arbitration and how to file a claim is available at

        Contact Amy Higgins at 768-8373;; or 312 Elm St., Cincinnati 45202. She regrets that she cannot reply to all individual questions.



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