August 28, 2010
I would like to comment on "Study Regarding Obligations of Brokers, Dealers, and Investment Advisers". Please be patient with my English ( it is my second language).
I would appreciate to have all financial advisors operate to a "best interest of the client" fiduciary standard. Any recommendation made by all financial advisors to the client should be based on the client's needs. I enjoyed reading most of posted comments and I respect everybody's opinion. I noticed that some advisors say: "If the regulations get too burdensome for me or my clients, I'll leave this business. That is not good for my clients." That advisor is welcome to leave and it would be good for clients. There is too much advisors who neglected their responsibilities. Some commentators say that:" The Dodd-Frank bill is written with good intent but will destroy the insurance planning careers of many talented and honest advisors". Well, how many clients were destroyed by dishonest advisors? Also, some other commentators say:" The bill will only open the floodgates for frivolous lawsuits"'. If advisors act honestly then there are no lawsuits. There are advisor who don't have a best interest of the clients.
I urge you to recommend to the Congress that it is necessary and appropriate in the public interest and for the protection of consumers to extend the fiduciary standard to all who provide personalized investment advice. If the Commission finds in its study that there are gaps in investor protection in the current regulation of brokers and dealers, then I would encourage to propose specific rules. However, I think that SEC must look at its own work, too. Is SEC helping investors? The SEC needs to do its job. We dont need to hear from TV or read from "Time" magazine about SEC's staff who browse X rated sites during work hours. Making rules is not enough. I would say that inside Commission should do reorganization and review its inspector's work. Especially those who respond to investors complaints. From what I read about the role of SEC is that there is a set of violation which make SEC initiate investigation against financial advisor. And what happens when investors send complaints? How committed inspectors are to do their job? Do they select only complaints where lots of money is involved? Are all complaints investigated, if not, why not?
I was a one time and first time investor. I lost little money but was shocked to realize how much I was not told before investing. Actually I was advised to invest in municipal funds instead of CDs. After using all ways to find somebody to listen to me, I sent a complaint to SEC. My complaint was about my advisor who sold me funds without telling me what class she selected. It was a case about financial advisor who told me how much cents per share (dividents) I will be receiving and it was not what I actually got. It was about reinvesting my dividents money without my permission and against my repeated requests not to reinvest.
When I sent my complaint to SEC I wanted to tell SEC what I knew. And, what I received from SEC? This is the SEC inspector's response to my complaint:
"This is to confirm that we received your complaint concerning (....). We have sent your complaint to the firms compliance department and asked them to respond directly to you, with a copy to the SECs Office of Investor Education and Advocacy. Please understand that this process may take two to three weeks.
Our efforts to facilitate informal resolutions of complaints often succeed. In some cases, however, the entity may deny wrongdoing or it remains unclear whether any wrongdoing occurred. If that happens, we cannot act as your personal representative or attorney, and you will then have to decide whether you wish to pursue legal action on your own. The following portion of this email outlines the steps you may wish to take if you choose that option, including information on arbitration, mediation, and sources of potential legal assistance. Please read these documents carefully. They describe your rights and important deadlines.
Please do not hesitate to contact me if you have any questions."
After the SEC's confirmation I awaited for their investigation result. At the same time, my advisor's management designated a lawyer for her who responded to me with his findings and it was all what he wanted to find. Of course he was telling me that it was me who selected funds and also he implied that I should be happy that I did not loose more money. After waiting for 2 months to get information from SEC I decided to write to the SEC's inspector to say that I am waiting for his result. And the SEC inspector responded again"
"This is in further regard to your complaint against (....). This will also acknowledge your recent correspondence to the SEC regarding this matter. We appreciate the opportunity to review your additional comments and apologize for the delay in responding to your recent correspondence. Please be assured that we will carefully consider the information contained in your correspondence. However, as we explained in our earlier correspondence, sometimes our efforts result in complaints being successfully resolved and at other times they do not. (.Company....) has stated its position in this matter in its letters dated X X, 2010 and YY, 2010. Please be aware that the SEC cannot compel the firm to reconsider its position or otherwise resolve this matter to your satisfaction.
When a firm denies wrongdoing, the SEC cannot force a firm to admit wrongdoing. In that case a judge, jury, or arbitrator will need to decide who is right or wrong. Accordingly, you may wish to review the information we previously provided you about your legal rights and how to proceed on your own, should you decide to pursue your complaint against the firm. Remember you do not have to have a lawyer to file an arbitration claim.
We regret that your complaint could not be resolved by us contacting the firm on your behalf. We have added your additional information to our complaint database.Once again, thank you for allowing us the opportunity to review your concerns."
I was not happy about SEC response. It looked like the SEC investigator just sent my complaint to the company and accepted whatever my advisor's lawyer wanted to say and of course it was nothing about wrongdoing. The SEC inspector did not investigate anything by himself. I wrote to SEC again and asked specifically about what kind of effort SEC made to find out if there was a problem with my case. It seemed to me that if SEC's inspector read my complaint and also my evidence, he would be able to tell that there was something wrong with my investment. I requested that SEC re-do its investigation. SEC responded again to my email:
"Thank you for your email and taking the time to alert us to your further concerns regarding (....). We appreciate the opportunity to review your correspondence.
OIEA processes many complaints received from individual investors and others. We keep records of the correspondence we receive in a searchable database that SEC staff may make use of in inspections, examinations, and investigations. In addition, some correspondence received by OIEA is referred directly to other SEC offices and divisions for their review.
The SEC conducts its investigations on a confidential and nonpublic basis and neither confirms nor denies the existence of an investigation unless the SEC brings charges against someone involved. We do this to protect the integrity and effectiveness of our investigative process and to preserve the privacy of the individuals and entities involved. As a result, we will be unable to confirm whether an investigation exists or provide you with any updates on the status of your complaint or of any pending SEC investigation. Information on our policy is enclosed. You may wish to check our website, www.sec.gov, for information about pending SEC civil actions, administrative cases, and other matters. We hope that this information is helpful to you."
Nonsens. Mostly what I expected was that SEC would find out if my financial advisor acted in a violation of their duty. Just because I did not loose millions, it doesnt mean that I should just forget what happened. Perhaps some other clients experienced the same kind of practices? Many small investors dont have a place to go for help, have no money for a lawyer. Most of the time they just dont know what to do and accept loss and dont bother. I think that I should forget my loss, too, and not bother. But why? And why SEC is not investigating small cases and focuses only on big cases? I found response from the SEC's investigator to be unsatisfied. The SEC inspector just didnt bother to do anything because my loss was not big by its standard. For me any loss is big. His advise to me was to go to a judge or arbitrator to seek what was true and what was not. In my opinion, facts and the truth were there very visible without seeking it. Is this ok when advisor buys municipal funds for a client but fails to disclose which class she chooses? Is this ok if advisor decided to re-invest dividents and purchased more shares even though client asked repeatedly not to re-invest? Is this ok when advisor said that client would get X cents per share but then actually got less? Is this ok if advisor sends updated information about company's great performance when company is close to collapsing? There is no doubt that there was a violation of some rules. Am I wrong? Some advisors hide behind comfortable excuses for example that it is not possible to predict what may happen with investment in the future and consider themselves to be without a fault when there is a loss.
I think that SEC needs to start from looking at its inspectors and then go and set rules for financial advisors and for own inspectors. Thank you and sorry, again, for my poor English.