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Reader Question: Resolving a Dispute With a Brokerage

This article was written by in Investing. Add a comment.


From time to time, Consumerism Commentary readers contact me with questions. I am not an investment professional or a financial planner, and I don’t offer advice related to investing other than my general thoughts on the topic. The questions I receive range from basic investing details like government-regulated limits for investment account types to how to deal with a malfunctioning ATM. I can answer some questions publicly, as the answer may benefit others in similar situations.

I recently received a question from a Consumerism Commentary reader. He is having a problem with his pension managed by TIAA-CREF. This is a timely topic, as I’ve just recently written about this company’s new retail banking branch and the TIAA Direct High Yield Savings Account. In this case, the reader believes that his account has somehow been tampered with. He has made repeated attempts to work with the company, but the broker’s customer service department refuses to rectify the balance in the account.

Without having any further details, I can’t be confident about the merits of the issue. Investments lose value often, and have particularly done so in the last few years. While a pension should be invested in a manner that is generally safe from value decreases, it isn’t always. There is risk that the investments in a pension will lose value, at least in the short term. Balances may fluctuate, but if you have a guaranteed pension payout, that should not be affected unless the pension is underfunded.

Savings and checking accounts are protected from losing value by the FDIC, a government agency. Another government agency, the Pension Benefit Guaranty Corporation (PBGC) protects pensions. This agency will take over pensions that go bankrupt in order to maintain promised payouts to pensioners.

Disputes about investment balances are handled elsewhere, however. If you believe a broker has not managed your account correctly and that you’ve lost money as a result of anything other than investment performance, then you can raise the issue with the Financial Industry Regulatory Authority (FINRA) and ask for arbitration. The process will take some time to resolve. On average, the process has been taking 14 months in the most recent data offered by FINRA.

Here’s how you can get started once you’ve exhausted all avenues for resolving the dispute directly with the broker. I should point out that you may want to avoid this process until you’ve done everything in your power to resolve the issue directly with the broker, including contacting the company’s executives.

  • Get a lawyer. An attorney familiar with investment banking will help you navigate this process. You can choose to handle the process yourself, but your opponent, the broker, will certainly have a lawyer. You don’t want to be at a bigger disadvantage than you already are for being one person battling a large corporation.
  • File a claim with FINRA. To prevent frivolous claims, FINRA requires anyone filing a claim to pay fees. The filing fee is based on the amount of damages you’re claiming. FINRA offers a fee calculator to illustrate what you might pay; I ran the calculator for a hypothetical claim requesting $200,000 in damages, and the resulting fee was $1,425.
  • Select an arbitrator and schedule a conference. FINRA will provide a list of arbitrators, and you and the broker must agree on the company that will be helping resolve the issue.
  • Present your evidence. You and the broker will go through a discovery process to exchange evidence that you were or weren’t damaged through the broker’s action or inaction. This will involve exchanging documents in support of your claim and presenting your argument in person with the arbitrator.
  • Wait for the arbitrator’s decision. Once the arbitration company considers the evidence, it will issue a decision and award any damages if necessary.

In 2012 through February, 79 percent of all complaints were settled any time after the initiation of the claim, so there’s a good chance that with the help of the arbitrator, you and the broker could come to a mutual agreement without going through the full arbitration process. In the same time frame, for claims that were not settled or otherwise closed before the arbitrator’s decision, the claimant was awarded damages in only 50 percent of the cases.

By investing with a broker associated with FINRA, you’ve agreed to abide by this arbitration procedure to resolve disputes when you’re unable to achieve your desired results by dealing with the broker directly. You can get started by filing a FINRA claim at the organization’s website or viewing the information FINRA has made available to the public.

Have you ever filed a FINRA claim for damages against a broker? I expect most Consumerism Commentary readers have not, but if anyone has experience with this type of process and can share some of the details, I’m sure readers would be interested in hearing about the process.

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TIAA Direct High-Yield Savings Account

This article was written by in Banking. Add a comment.

Just when you thought the era of new online banks splashing into the market was over, TIAA-CREF is on the hunt for customers’ deposits. TIAA-CREF Trust Company, FSB was established in 1998, and the bank just began offering deposit accounts in the last month. The products, under the name TIAA Direct, are intended to compete with the best online savings accounts and checking accounts, and as of now, the interest rates are attractive.

I have some of my retirement funds invested with TIAA-CREF’s mutual fund division, and after a frustrating effort with the company to fund my SEP IRA several years ago, I decided to leave the company in favor of Vanguard for my investments.

I initially chose to invest with TIAA-CREF due to their low minimum investment amount and their association, at least in my mind, with the education industry and non-profit organizations. Several companies within the TIAA-CREF family are non-profit organizations, but the government revoked its 501(c)(3) status in 1998. As a result, the company does not enjoy the same tax benefits as other non-profit organizations.

My experience with the investment arm of TIAA-CREF and the lack of a need to open yet another savings account may prevent me from opening a new account with TIAA Direct. Customers who are looking for the best interest rates would do well to investigate the bank further, though. When a new account arrives on the scene, it will attempt to attract new depositors, and that often includes offering a great interest rate for savings accounts.

I’ve found that for the most part over the last decade, banks who offer overly attractive terms and initiate a significant marketing endeavor after their arrival soon lower interest rates. Once the company has received its target amount of deposits, there is less motivation to attract new customers. Some banks have even closed their doors to new customers once their target was reached.

The following details are as of March 20, 2012, and are subject to change at any time.

TIAA Direct is attracting new customers to its basic High Yield Savings account with a 1.25% APY, one of the best interest rates currently available in the United States. This rate is about twice as much as the interest offered by some of TIAA Direct’s most relevant competitors.

There is a $25 minimum initial deposit and there are no fees. The savings account and the companion Money Market account are limited to six non-ATM transactions each month, as mandated by banking regulations. The Money Market account offers the same interest rate and minimum deposit as the High Yield Savings account but also offers check-writing privileges. Both accounts include an ATM card.

The bank is also offering an interest checking account with interest rates ranging from 0.05% to 0.15% APY. Customers will receive free checks, a debit card, and the ability to deposit checks using an iPhone application. Again, there is a initial deposit requirement of at least $25.

Once these accounts are open and funded with at least $25, there is no ongoing minimum balance requirement.

If you’re willing to lock up your savings for a period of time, TIAA Direct is also offering certificates of deposit with maturities of six months, one year, and two years. The interest rates for these accounts are lower than the High Yield Savings account and the Money Market account. You’re better off keeping your money in a savings account earning more interest and keeping your savings liquid until the CD rates exceed the rates earned in the savings account.

There are some finer points to consider; if you expect the savings account interest rate to dip below the best CD interest rate within the next two years, and you expect the CD rate to dip as well, you might be better off locking in the two-year CD rate today. It’s impossible to predict the future though, and you can make these decisions based only on what you know. There’s a good chance that the high interest rate on the savings and money market accounts won’t last, as has been the case for banks looking to make some noise and attract depositors right away.

There’s an indication of a lack of transparency, a troubling sign. There is a fee to withdraw funds from your CD before it reaches maturity, but you can only discover the details of this fee in the disclosure document customers receive only after funding the CD. You have to lock up your money before you’re told how much it’ll cost you to withdraw your cash in an emergency. Other banks typical penalize customers for withdrawing money from a CD by charging a fee based on the interest accrued in the account.

The real tests of a savings account, particularly in an environment where interest rates are low, are whether your money will be accessible when you need it and how well you’re able to work with customer service. TIAA Direct is new on the block, but if it inherits its customer service from its parent company, based on the feedback from hundreds of customers visiting Consumerism Commentary, potential customers may want to steer clear of this bank’s new deposit products.

Note: Richard Barrington from Money-Rates.com has asked for an interview with a spokesperson for TIAA Direct, but the company is saying they are not yet ready to launch these new products. You can, however, open a new account using the TIAA Direct website, and it is open to the public.

Photo: frankh

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Year-End Personal Balance Sheet, December 2011

This article was written by in Monthly Update. 18 comments.

I’ve spent the last decade of my life focused on my finances. I started because I had no money and a job that was taking more from me than it was providing in income. I knew I had to make some changes if I wanted to build any kind of future for myself. Soon into this journey, I founded this website, where I’ve written about my own financial situation and tracked my balances on a monthly basis.

Over the years, my financial situation has improved. Rather than focusing on and tracking every cent as I was doing in 2003, a necessary step to train myself to save money and value everything I was earning, I now am significantly more relaxed. I still track my bank account balances. Eventually, I stopped tracking every cent I spent with cash. Cash spending became such a small percentage of each month’s income that it became unnecessary for me to enter every receipt (or every remembered transaction for those where no receipt was provided) into Quicken. I have been using credit cards for most expenses. (I was using credit cards to take advantage of rewards, which I didn’t start doing until I was out of debt, spending less than I was earning, and making conscious spending decisions.) The credit cards helped me carefully track my expenses.

My ability to improve my financial condition has been partly due to my public tracking. When my numbers are published online, I have to admit to my mistakes and accept criticism from readers when it’s due. Knowing that I will be reporting the details of my bank accounts helps me to continue making good decisions with my money.

At the end of the year, I take the chance to look at my life from a broader perspective. I now have ten years of history in my Quicken file. I’ll be thirty-six years old in a couple of months, so my finances have been a focus for almost all of my adult life. And for those of you, readers, who know me only through this site, only as “Flexo” or Luke Landes, you may think that an obsession with personal finance rules my life. The good news is that this isn’t true; outside of Consumerism Commentary, when I see my friends and family, personal finance is not usually a topic of discussion.

With ten years of history in Quicken, I can easily see my own financial progress over time. At the end of 2001, the world was still shaking from terrorist attacks in New York and Washington, D.C., and my life was uncertain. With no money, no job, no girlfriend, and no place to live, I knew I needed to make changes in my life. That’s what I did.

Continue reading to see the numbers. Read the full article →

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Year End Reminder: Fund Your IRA Now

This article was written by in Investing. 1 comment.

These last few weeks in December present a good time to prepare your finances for the coming year. My personal goal is to start January 1 on a good note, moving my life forward. In the grand scheme putting your finances in order takes a back seat to cleaning up your life as a whole, but it’s an important task because it can set you up for financial success. I’ve suggested changing your 401(k) contribution level early and donating to charity. It’s also a good time to fund your Roth (or traditional) IRA.

Usually, the reminder to fund your Roth IRA comes in March or April. The deadline isn’t until your tax return is due in the following year. For example, I have until April 16, 2012 to transfer money into my IRA and have the contribution count towards my 2011 limit. But why wait?

When investing for retirement, you can choose between two approaches. You can contribute to retirement accounts in a lump sum investment or you can use periodic investments (often called dollar-cost averaging) to spread your contribution over a longer period of time. You can also use a combination of the two approaches. For most savers, the choice comes down to cash flow.

Choose between lump-sum and periodic investments

Dollar-cost averaging, or using the same dollar amount to purchase a theoretically different amount of shares of investment regularly, can help smooth out the short-term volatility in stock prices. When compared to investing a lump sum, with periodic investments, you’ll sometimes invest when the prices of the stocks or funds are higher, and sometimes invest when the prices are lower. It’s one way to mitigate a small amount of risk. If your options are between dollar-cost averaging and saving up to invest in a lump sum later, thanks to the general long-term trend of an increasing overall value of stocks, you’ll generally be better off in the end using periodic investments.

That’s because it’s generally to invest what you can as early as you can. This is why many people choose periodic investments. Cash flow plays a large role in determining how a family or individual will invest. Unless you’re borrowing money to invest into retirement — a dangerous proposition — chances are good you won’t have $5,000, the IRA contribution limit for people under age 50, ready to go on January 1. The first day of the year is also the first day you can contribute to the new year’s IRA.

It can take a while to save up $5,000, so if you can spread the contribution over twelve months at $416.66 per month, now is a great time to configure your coming year’s investment strategy on your IRA plan’s website. If you don’t have an IRA yet, you can start one at any discount brokerage. I use Vanguard, but Fidelity is also good, and TIAA-Cref offers the benefit of very low investment minimums. All allow you to configure periodic electronic investments from your bank account.

If you haven’t invested in this year’s IRA yet and you don’t have the cash available to invest in one lump sum, create periodic investments that help you invest as much as you can budget for between now and the April deadline.

On the other hand, you might have cash available. If so, fund this year’s IRA up to the limit now, and prepare to fund next year’s IRA soon after December 31, both in lump sums. There’s a chance that you won’t get as good a price on your investment as you would the day before or the day after, but if you’re investing for the long-term, the difference between days should be much less influential on your financial success than market performance leading up to the day you begin withdrawing and the period of time to follow.

Choose between traditional and Roth IRAs

While the laws could change at any time, traditional and Roth IRAs have a few differences. In general, if you believe you’ll be in a lower tax bracket than you are now and you qualify for the tax deduction with the traditional IRA, that would be a better option. That’s particularly the case if you don’t have an employer-sponsored retirement plan such as a 401(k). On the other hand, if you’re already receiving the tax advantage of a 401(k), and you believe you could get a better tax advantage by taking a deduction in retirement because you expect to be in a higher tax bracket, the Roth IRA might be a better choice.

Of course, you can hedge your bets by splitting your contribution between the traditional and Roth IRAs. If, however, you earn enough money, you might not qualify for a Roth IRA.

You can use this IRA contribution wizard at Mint.com to determine which IRA is best for your particular situation.

Just do it

Keep in mind that with a long-term view, a lump sum investment is preferable, if you can invest that lump sum right away. If cash flow is a concern, set up a periodic investment to invest smaller amounts over time. Every major brokerage can support this hands-off, automated approach. Saving up to invest is a last resort. If you are not enamored with the idea of investing in the stock market right now, you can always choose a safer investment, even a money market fund or a certificate of deposit. Regardless, the sooner you get invested, the better for your future finances.

Don’t wait for the deadline; for the most part, people who consistently invest the maximum on the first day (January 1 of the coming year) will be better off than those who wait to invest the maximum on the last day (usually April 15 of the following year), because those who wait miss 15 and a half months of potential growth.

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Opening an IRA With a Discount Brokerage

by Flexo

As a fan of index mutual funds for the long term, I’ve stuck with first TIAA-Cref and currently Vanguard for my IRAs. I started with TIAA-Cref because when I first discovered Roth IRAs, I didn’t have enough saved to qualify for Vanguard’s minimums. Both brokerages offer low-cost options for those who want to invest in ... Continue reading this article…

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Year-End Personal Balance Sheet, December 2009

by Flexo

At the end of every month, I review my personal finances, including bank account balances, investment performance, income and expenses, and I share some of those details here. This was the original purpose of Consumerism Commentary: to track my own finances publicly and hold myself accountable for my financial decisions. I wasn’t aware at that ... Continue reading this article…

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Still Having Problems With TIAA-Cref? Tell Us Now

by Flexo

On July 20, TIAA-Cref will be holding its annual participant meeting. There is an effort underway to encourage the company to be more socially responsible and accountable to its customers, and representatives will be attending the meeting to bring any common problems directly to the board’s attention. Are you having customer service problems with TIAA-Cref? ... Continue reading this article…

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Kiplinger’s Best 529 College Savings Plans

by Flexo

Although I do not have children, I am considering starting to save for college. With the cost of tuition rising well above levels of inflation, the sooner I get started, even before any children exist, the higher the chance my child or children will be able to go to school without an insurmountable pile of ... Continue reading this article…

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