The Financial Industry Regulatory Authority (FINRA) has published a best practices guide for investors that describes common investor problems and how they can be avoided. These are the most common complaints FINRA’s Investor Complaint Center receives, and recommendations for avoiding them.
Misrepresentation is an untrue statement or omission of material fact that a broker makes purposefully relating to an investment. This may happen with any security, but is more common with low-priced, speculative securities because they are riskier. Investors can avoid this problem by asking brokers to send written information that backs up their representations. Ideally, such representations should be independently verified by your own research.
Cold-Calling or High Pressure Sales Calls
This problem occurs when an investor receives frequent, badgering phone calls or calls that involve a high pressure sales pitch such as an investment only being available for a limited time. Remember that with any sales pitch, claims that seem too good to be true usually are. Investors should never send money to a firm or broker they are hearing from for the first time. You can investigate a broker’s background via FINRA’s BrokerCheck system or by checking the state securities office. Also, callers must limit calls to between 8 a.m. and 9 p.m., and must comply with a request to be placed on their “do-not-call” list.
Unsuitability can be a problem whenever a broker encourages an investment that does not match the investor’s goals and investing profile. An example would be recommending that an investor with a fixed income invest in a highly speculative security. To keep clear of such issues, investors should always make sure they understand and agree to the nature of any investment. If you don’t understand it, don’t buy it.
Unauthorized trading occurs whenever securities are bought or sold in customers’ accounts without their prior knowledge and authorization. To prevent this from happening, review account statements carefully, document all conversations with brokers, and take immediate action if you discover an unauthorized trade.