The Financial Industry Regulatory Authority (FINRA) operates an Investor Complaint Center that is designed to receive complaints from investors regarding their brokers and/or the firms that employ them. Their role is to investigate these complaints for potential violations of securities laws or regulations. The below information discusses some of the most common problems reported by investors in their complaints to FINRA.

Listed below are the four most frequently reported problems made by investors filing complaints with FINRA:

1. Misrepresentation

Misrepresentation can occur when a broker purposefully makes untrue representations of material facts or omits material information. This can happen in any security in any account, but this problem is commonly found with low-priced, speculative securities because of their increased risk.

 
How To Avoid This Problem

 
Ask the broker to send you information that will back up his/her representations.
 
If you rely on your broker, make sure the investment meets your objectives; and make sure you understand and are comfortable with the risk, costs and liquidity of the investment. Never invest in a product you don't understand.
 
Ideally, you should independently verify information by thoroughly reading a prospectus, research reports, offering materials, annual reports (10K), quarterly reports (10Q), brochures or other documentation. Keep contemporaneous notes of your conversations with the broker.
 

2. High-Pressure Sales Calls (Cold-Calling)

High-pressure sales calls (sometimes referred to as cold-calling) occur when an investor receives unsolicited or unwanted phone calls—using high-pressure, persistent tactics—soliciting the purchase of securities. This is most frequently found with low-priced, speculative securities.

How To Avoid This Problem

NASD's Telemarketing Rule (NASD Rule 2211) limits the calling time to between 8 a.m. and 9 p.m. Brokers calling must identify themselves by providing their name, firm name, address or phone number. If you do not want such calls, ask the caller to place you on the firm's "do-not-call" list.
 
Beware of sales pitches that make exaggerated claims about the expected profitability of a particular investment, or make specific price predictions, such as, "your money will double in six months." If it sounds too good to be true, it usually is.
 
Never send money to a firm or broker that you are hearing from for the first time simply based on a telephone sales pitch. If you do so, be prepared to accept the risk of losing the entire investment.
 
Find out about the broker's or investment adviser's background via FINRA BrokerCheck or by calling the FINRA BrokerCheck Hotline (800) 289-9999. Call the state securities office and Better Business Bureau.
 
Meet with your broker and visit the firm, if possible. Investments are major financial undertakings and should be afforded the same degree of investigation and caution as any other major purchase you might make.
  
Ask for and review written material before buying. Check confirmations and account statements carefully. Look for evidence of unwanted credit or margin use.
 
 

3. Unsuitability

A suitability problem can involve any security and occurs when an investment made by a broker is inconsistent with the investor's objectives and investing profile (e.g., age, financial status, long-term goals, income and net worth of the customer). For instance, the broker encourages an investor to purchase an investment that the broker wants vs. an investment that may be best suited to the investor. An example of such an investment would be a recommendation to make a significant investment in a highly speculative security to an investor with a fixed income or the need for monthly income.

How to Avoid This Problem

Read and understand the terms of any new account agreement you may be asked to sign with the firm. Make an informed decision before agreeing to allow the broker to use discretion in buying or selling your investments. Also, fully understand how margin and other credit provisions work and the circumstances in which you could be asked to pay additional monies.
 
Understand and agree to what is being purchased before the transaction occurs. If you can't explain it, don't buy it.
 
Provide the firm with accurate information and don't inflate your net worth, income etc. Be candid about disclosing financial constraints. Doing so would help prevent running into a problem.
 
Ask to review what is on file at the firm regarding your account, such as a new account form with client profiles, margin account agreement, options account agreement, discretionary account agreement, etc. You have the right to know what is on file about you, and information must accurately reflect your objectives—age, financial status, long-term goals, income, net worth, etc. 

 
Thoroughly read and retain your monthly account statements, confirmations and any other information you receive about your investment transactions.
 
Be proactive, ask questions (How is this in line with my investment objectives? What is my risk of losing money on the investment? What has been the past performance of the investment? How liquid is this investment, and what are the costs of liquidating the investment and other barriers to sale?).
 
Keep good records of communications with the broker. Contemporaneous notes of your conversations with the broker will help. Also, repeat your sense of the conversation to ensure you both have the same understanding. Be careful not to be the victim of miscommunication. For example, when a broker says "can I put you down for x shares" he really means can I purchase them for you.

 
4. Unauthorized Trading

Unauthorized trading involves the purchase or sale of securities in a customer's account without the customer's prior knowledge and authorization. This can occur with any security. For example, the broker may believe a transaction is in the investor's best interest but cannot or does not contact the investor, and then makes the trade anyway. Or, the broker attempts to convince the investor of the benefits to the transactions in the hopes that the investor ratifies trades after the fact. Remember, brokers generate commissions through executing transactions (sales or purchases). That is why you should pay close attention to activity in your account.

How to Avoid This Problem

Always repeat instructions to your broker to promote a clear mutual understanding of the transaction.
 
Document (keep notes) all conversations with brokers. Thoroughly read and retain, in a timely fashion, your monthly account statements, confirmations and any other information you receive about your investment transactions.
 
Take immediate action if you see a transaction you do not recognize. Time is critical. Reconcile any discrepancies at once. Contact the firm's branch manager. And, send a telegram, or registered or overnight letter to the compliance department of the firm refusing the purchase. Also, follow up with a phone call to the firm's compliance department. The longer the lag time, the less substance and credibility your argument has.
 

Investors' Recourse

If you believe you have been subjected to unfair or improper business conduct by a securities professional, FINRA encourages you to voice your concerns. Your first course of action should be to report the matter to your brokerage firm's management and contact the firm's compliance department to discuss any concerns about the broker's conduct. However, if you, your broker and the firm cannot resolve the matter, there are effective alternative dispute resolution mechanisms available to you, including mediation and arbitration. FINRA has full-fledged Mediation and Arbitration Programs in place for investors.