Keeping peace with a broker


Pressures on brokers to produce sales and commissions just to hold their jobs may encourage investments that are not in the customer's best interest. Whatever the cause, broker-customer disputes are on the increase.

How can you avoid disputes with your broker? What choices do you have within the system to resolve your complaints?

"You should realize that once you open a brokerage account, arbitration is the only game in town," says Hartley Bernstein, a partner in the New York law firm of Brandeis, Bernstein and a specialist in securities law,

Investing through a broker can be a fair game if investors make certain it is played on a level field, Bernstein believes. "This means taking full advantage of the arbitration rules and regulations, choosing the right panel and keeping accurate records of your account," he says.

Choosing the "wrong" panel could cost you money in more ways than one. For instance, the three major bodies that hear broker-customer disputes are the National Association of Securities Dealers (NASD), the New York Stock Exchange (NYSE) and the American Arbitration Association (AAA). And, depending on the agreement you sign, you may not be able to choose the AAA.

Unfortunately, the arbitration system does have flaws, according to Bernstein. The NASD, for example, has lower fees than the American Arbitration Association, but the investor has little input into the selection of arbitrators. Instead, he or she is dependent upon an NASD administrative attorney to select the particular panel that will hear the case. In some instances this may result in arbitrators who are more industry than consumer oriented. On the other hand, the AAA charges the highest fees but permits the parties to select the arbitrators.

The NASD does not agree that it is an industry-related forum. According to Conrad Shih, manager of its Arbitration Department, "Two out of every three of our panel members are 'public.' This means they are taken from a list of men and women who have nothing to do with the securities industry. We pride ourselves on our fairness." Bernstein agrees that two NASD panelists are always "public" but points out that by the NASD definition someone who has not been employed in the securities industry during the past three years is a "public" arbitrator -- even if he spent the preceding 20 years at a brokerage firm.

Will you really do better if you choose the "right" panel? Maybe yes and maybe no. You hear about big awards, but the reality of the marketplace is that most investors recover only part of their losses. And the fate of your claim may differ dramatically, depending upon the state where your hearing is held.

How do you help yourself? Keep accurate records. You will be called upon to produce them. The more you have, the better your credibility. You need an attorney. Be sure to tell him all the facts. Your broker will be represented by an attorney, and if you aren't, you will have trouble establishing that level playing field.

Of course, preventing disputes before they get started is always best:

* Be skeptical of "cold calls." Those unsolicited phone calls that promise "the perfect stock if you move immediately" deserve this response: hang up!

* When you open a new brokerage account, be sure to read every form you sign. Often individuals sign margin and option agreements that lead to types of transactions they never contemplated. If your agreement or form refers to "lending" securities, be sure to ask your broker whether this constitutes "margin."

* Remain vigilant. Read your monthly brokerage statements carefully because there may be symbols, numbers or even transactions you do not understand. If this happens, ask questions immediately. And if you don't get a satisfactory answer from your broker, speak to his manager.

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