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Whenever I interview a potential new client, I review with them the same information that would generally be contained on a new account form. This is because the new account documents sets forth all of the information that is needed to compare the suitability of all of the subsequent activity that took place in a customer’s account from a security specific discussion, to the type of trading strategy employed.
Most, if not all, new account documents require the customer to give his name, social security number, address, telephone number, current employment, marital status, annual income, net worth, banking information, investment experience and investment objectives. From an investor’s standpoint, providing this information accurately is of paramount importance for a number of reasons:
Also, at the time that you establish your account you need to decide whether or not you want a cash or margin account (option accounts will be dealt with in a separate post). These terms mean exactly what they imply. Either you have to fully pay for the purchases that you make or you can borrow money from the firm to help pay for your purchases. Please make sure that before you make this decision you have a full understanding of how long you have to pay for a cash purchase, if you do not have the full purchase price in your account, or have a working understanding on how the proposed margin account would work. There are many characteristics of cash and margin account that are not discussed herein. Take as much time as you need to understand all of the requirements associated with these two types of account. Most firms have written materials that will provide the rules and regulations relating to these accounts. Please read them. Keep in mind that the use of margin to purchase or hold security positions in your account generally increases the risk that your account is subject to.
Margin accounts are unique in the manner that they work. If you look at the fine print on the margin agreement, you will see that the firm has the right to sell out your margin positions if it feels in jeopardy. You also need to understand such terms as initial margin, maintenance margin, house call (a form of margin call), Reg T margin call and what other margin rules apply, like the fact that you can’t margin a stock that has a market price of under $3 per share. I have seen this later circumstance start a liquidation roller coaster that the client could not get off which ultimately caused him substantial damage.What You Should do in Opening a Brokerage Account!
Some firms, after the account relationship is established, will send you a negative consent letter in the mail, confirming some or all of the information contained on the new account document. If some of the information is incorrect, immediately take steps to correct the inaccurate information. Don’t let the account executive blame the error on computer problems. Get a written confirmation of the correction.
A final word on the information contained on the new account documents. If the initial information is accurate but any of your circumstances change, it is important to notify the firm, in writing, immediately so that your information is updated. It is this new updated information that will then be used to determine the suitability in your account
By the time that someone comes to see me, the process referenced above has been completed, usually for quite some time. We therefore have to look at the activity, in your account, from a number of different standpoints to determine whether or not this activity or the investment strategy used was suitable for you. One of the major issues to be explored is the exact nature of the relationship that you had with the account executive. This has an impact on suitability and whether or not their was a breach of any duty owed to you.Contact Us
If you believe you have been the victim of securities or stockbroker fraud or misconduct, we can help you explore your options and discuss whether you may be able to make a financial recovery. Located in Boca Raton, Florida, we represent clients across the United States. Contact us to arrange your free initial consultation. We return all calls by the end of each business day.