by Howard Haykin

In September 2018, a New Orleans-based broker with Century Securities Associates sat down with his client to map out an investment strategy. Over the next 8 months, the broker implemented that strategy, executing 6 trades on 4 dates The broker did not consult with the customer each time he executed a trade. By May 2019, however, the account had lost $1,844 and the customer complained. The firm compensated the customer for his losses, and then fired by broker for having “exercised discretion without written authorization.” FINRA, the securities regulator, conducted its own investigation, which resulted in additional sanctions.

What most concerned Century Securities and FINRA was … the fact that the broker failed to consult with his customer before each trade – notwithstanding the fact that the pair had previously agreed upon an investment strategy. Simply stated, the broker wasn’t authorized for discretionary trading in that customer’s account.

What most concerned the Customer were … the $1,844 in losses - though it’s not at all clear why the customer needed to complain directly to the firm. Here are some possibilities – which might prepare investors for the next time their brokers or investment advisers suggest investment strategies.

Perhaps ... 

• The broker didn't explain the strategy in clear terms.
• The broker didn't identify attendant risks, including the risk that investments could initially fall in price.
• The broker guaranteed that the investments would generate profits.
• The broker overlooked the fact that the investments were not suitable for this customer – e.g., they were too volatile.
• The broker failed to update the customer - say, monthly or quarterly - on the progress of the strategy.

[For further details, click on … FINRA Case #2019062882001.]