Jan. 9, 2017 Show
The SEC’s Office of Investor Education and Advocacy (OIEA) and Broker-Dealer Task Force are jointly issuing this Investor Alert to help investors identify excessive trading in their brokerage accounts and to educate investors about steps they should take if their brokerage firm notifies them of a high volume of trade activity in their accounts. How can I tell if there is excessive trading in my account? When reviewing your account statements, trade confirmations, or online account, look out for these red flags that may indicate excessive trading:
Churning. A broker typically earns a portion of the commissions or other fees on each purchase or sale of securities that the brokerage firm makes for an investor. When a broker engages in excessive buying and selling (i.e., trading) of securities in a customer’s account without considering the customer’s investment goals and primarily to generate commissions that benefit the broker, the broker may be engaged in an illegal practice known as churning. Be aware that excessive trading can occur even if the overall account value increases. Also, remember that your account statements, trade confirmations, and online account do not disclose all fees – you can find more information by asking your broker. If you do not understand the reason for a trade or the reason for a fee, contact your broker and ask about it. You also can ask the SEC a question or call the SEC at (800) 732-0330 (or 1-202-551-6551 from outside of the U.S.). Communicating Your Investment Goals to Your Broker. When you open a brokerage account, your broker should ask you to specify your overall investment goals (or "investment objectives") and how much risk you are willing to tolerate. Different firms use different terms to describe investment objectives or risk-tolerance levels. Some common terms are: "capital preservation," "income," "growth," "moderately aggressive," "aggressive growth," and "speculation." Make sure that you understand what these terms mean and that you know what you communicated to your broker. What should I do if I am informed of a high volume of trade activity in my account? If your brokerage account has a high volume of trade activity, your brokerage firm may contact you and ask you to acknowledge the trading or to confirm that you are satisfied with how your broker is handling your account. If you receive such notification, you should ask your broker to explain:
Once you have this information, you may want to speak with the broker’s manager or the firm’s compliance department to understand and to question the nature of the trading in your account in light of your investment goals and risk tolerance. Examples of SEC Enforcement Actions Involving Excessive Trading. The SEC’s Broker-Dealer Task Force has identified churning and excessive trading as key areas of focus, and the SEC has recently brought enforcement actions against brokers for defrauding investors by churning their accounts and recommending a frequent trading strategy without a reasonable basis for such recommendation:
What should I do if I believe there has been excessive trading in my account? If you believe a broker has engaged in excessive trading including churning, or to report other problems with a broker, submit a complaint in writing to the brokerage firm and to the SEC or FINRA. Additional Resources Check the registration status and background of anyone recommending or selling an investment using the SEC’s Investment Adviser Public Disclosure (IAPD) database, which is available on Investor.gov. Updated Investor Bulletin: How Fees and Expenses Affect Your Investment Portfolio Investor Bulletin: Investor Complaints Visit Investor.gov, the SEC’s website for individual investors. Sign up for OIEA Investor Alerts and Bulletins by email or RSS feed. Follow OIEA on Twitter @SEC_Investor_Ed. Like OIEA on Facebook at facebook.com/secinvestoreducation. When determining whether a registered representative is churning an account each of the following is taken into consideration except?When determining whether a registered representative is churning an account, each of the following is taken into consideration EXCEPT: Written requests can be for up to 3 months, but longer periods may be granted for acceptable reasons.
Which of the following documents would not be required when a corporation?Which of the following documents would not be required when a corporation wants to open a cash account at a broker-dealer? In reading the question carefully, we see that the corporation wants to open a "Cash" account, therefore a Margin Agreement would not be required in order to open the account.
Which of the following is not included in the definition of a brokerThe Uniform Securities Act (USA) explicitly names three persons that are consistently excluded from the definition of a broker-dealer: Agents. Issuers. Banks, savings institutions, and trust companies.
Which of the following is are considered an associated person's of a brokerThe Act defines an "associated person" of a broker-dealer as any partner, officer, director, branch manager, or employee of the broker-dealer, any person performing similar functions, or any person controlling, controlled by, or under common control with, the broker-dealer.
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