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Reader Question: Resolving a Dispute With a Brokerage

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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.

Published or updated March 21, 2012.

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About the author

Luke Landes is the founder of Consumerism Commentary. He has been blogging and writing for the internet since 1995 and has been building online communities since 1991. Find out more about Luke Landes and follow him on Twitter. View all articles by .

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