Complaints Soar Against Brokers, Rise Less For Advisors

Both investor complaints and arbitration claims are escalating, thanks to the bearish market, chagrined investors and perhaps some less-than-savory sales practices.

Arbitration claims against securities professionals were up 22% as of May, says NASD Dis-pute Resolution Inc. President Linda D. Fien-berg. Customer complaints against brokers and advisors have jumped as much as 70% in 2001.

"Particu-larly striking is the increase in complaints for unsuitable investment recommendations and misrepresentations," says John Nestor, spokesman for the Securities and Exchange Commission‚s Office of Investor Education & Assistance.

Still, not all advisors should be tarred with the same brush. There has been a relatively small increase in complaints against registered investment advisors, but it‚s fairly miniscule compared with the flood of complaints against commission-based brokers and advisors. "We are careful to ask whether the investor work-ed with a broker or advisor, and if there appears to be any error, we‚ll call the firm to confirm," says John Gannon, deputy director of the SEC‚s investor-education office.

In 1998, there were 419 total complaints against SEC-registered investment advisors, 389 in 1999 and 397 in 2000. So far this year there has been a slight uptick, but not a significant one. However, the case of Stevin Hoover, a Boston, Mass.-based investment advisor who was listed in Worth magazine‚s list of top advisors, drew attention. Hoover was accused of illegally transferring or misappropriating more than $450,000 in client assets.

Sales abuses top the list of grievances against brokers at both the NASD and the SEC. Fienberg says negligence or misrepresentation, churning, lack of suitability and margin-call complaints are dominating arbitration claims. The SEC‚s Nestor agrees. "Unsuitability wasn‚t even in the top 10 complaints last year, but it‚s quickly moved up to the No. 5 spot so far in 2001," he adds. What‚s No. 1? Misrepresentations.

It‚s more the market than broker wrongdoing, Fienberg maintains. "I haven‚t said to brokers, ‘You‚re doing something wrong.‚ All I‚ve said is there‚s a 22% increase in claims. My speculation is that claims are caused by a number of things. The market has turned down precipitously, more people than ever before are investing, and more people bought on margin. We‚re telling investors they need to be careful and check brokers‚ CRD records and not buy from brokers who are cold calling or who they don‚t know."

Fidelity To Launch Wealth-Management Offices

Fidelity Investments plans to open private wealth-management offices in affluent areas to attract well-heeled clients, Financial Advisor has learned.

The investment company, which historically has preferred to leave financial decision-making to its clients or work through intermediaries, has formed a Wealth Management Group to better target the affluent. It plans to open a wealth-management office in Palm Beach, Fla., this summer, among others.

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