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How to Complain About Your Broker
This article originally appeared in the December /January 2002 issue of MoneySense
Just about everyone has taken a hit from the fading stock market of the past few months. For most of us, it's just another dip in the roller-coaster ride called investing, and we'll keep riding until another upside comes along. But what if you suspect your broker had a hand in bringing down your portfolio? Whether the cause was your broker's nonchalance, neglect or outright misconduct, here's how to get your money back:
Step 1: speak up
If your client profile clearly identifies you as a conservative investor, but your broker put you into high-risk stocks, you have grounds for complaint. The first thing you should do is talk to your broker: he or she may offer to make good on some of your losses. If a client-to-broker chat doesn't sort things out, go to the higher-ups in your broker's firm and try to negotiate a settlement. This simple tactic yields surprisingly good results. "If brokerage firms see a problem in a client account, they pay," says an in-house lawyer for a national brokerage firm, who asked not to be named. "If there's a real issue, there's not much point in wasting time and money and potentially compromising the firm's reputation by dragging the client through the court system."
Contrary to popular belief, complaining to your provincial securities commission or the national Investment Dealers Association won't bring you any closer to a reimbursement. "A regulator can fine a brokerage firm, they can fine the broker," says the brokerage lawyer we contacted.
In practice, however, they never order the firm to pay a client money. If the firm is owned by a bank, you can add weight to your case by complaining to the bank's ombudsman, as well as the Canadian Banking Ombudsman ( www.bankingombudsman.com), a sort of go-between who can order the firm to give you a refund. Try negotiation first. If your solo efforts prove fruitless, it's time for...
Step 2: Get professional help
Hiring an investment advocate or securities lawyer in your battle with the brokerage is kind of like getting your big brother to back you up in a showdown with the schoolyard bully. Often, a brokerage that initially rejects your complaint will offer to settle once legal proceedings are set in motion, according to Alistair Crawley, a Toronto-based securities lawyer with the firm Groia & Co.
Ethical pros will take on your case only if they think it has a fighting chance. "What you're seeing now are people who were very happy in the positions they were in when they were going up and now are bitching because they've gone down," says Anthony Davidson, a Toronto chartered accountant and former stockbroker who's been helping clients recoup investment losses for more than a decade. "The most common thing I've heard in the last eight to 12 months is "my broker didn't tell me to sell Nortel." Davidson won't pursue those types of complaints. If you and your lawyer or advocate agree that your complaint is legitimate, you can take the case to civil court (which will cost you $35,000 to $50,000 in professional fees), or to go through the legally binding arbitration process that's available if your firm is a member of the Investment Dealers Association (a relative bargain starting at $2,500 to $4,000). Arbitration is recommended for losses of $80,000 or less.
Finding a reliable pro to help with your dispute can be tricky. Just like brokers, not every lawyer or so-called investor advocate who hangs a shingle on an office door is to be trusted. So ask about your advocate's track record. Make sure he or she has experience in both the legal and investment sides of the issue. If an advocate is a former stockbroker, investigate the reason for his career change. It may be that the broker has been prevented from trading due to misconduct on the job, and his advocate gig is a halfhearted fallback.
Check the bulletins on the IDA Web site ( www.ida.ca) to make sure a former or current stockbroker has a clean record.
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