Jan. 16, 2001 In a speech tonight at an investor "town hall" meeting in Philadelphia, SEC Chairman Arthur Levitt Jr. continued to chastise brokers and the industry, and warned the attendees to assert their rights.
"Both in the private sector and during my time at the commission, I’ve come across a number of instances that, quite frankly, do not honor an investor’s rights," Levitt said.
He told investors they have an obligation to check out their brokers and research investments.
"The very first question that a person should ask his or her broker is ‘How do you get paid?’" Levitt said.
"Commissions reward a broker for the quantity of his transactions, not necessarily the quality," Levitt warned. "So if you are paying your broker through commissions, your interests may not be necessarily aligned with your broker’s--and sometimes that leads to trouble."
He told investors to ask their rep if fee-based accounts might make more sense. "If you don’t get a straight answer … take your business elsewhere. "Levitt also said investors should find out if their brokers get paid more for selling one product over another. "Your broker could be on his or her way to Hawaii right now because you bought the product of the month," he said.
"In recent years, we’ve also seen a surge in a practice called ‘switching,’" the SEC chairman continued. "That’s when your broker sells your holdings in one mutual fund or annuity, and uses the proceeds to buy another." Levitt fingered bonus annuities as one problem area for product switches.And apparently for the first time, Levitt publicly addressed account-transfer problems--consistently one of the top complaint categories at the SEC, and a recurring problem for brokers when they change firms.
"An account transfer should take place within days," Levitt said. "More often, it takes months. Part of the problem is that sometimes an investor holds a specific mutual fund not carried in the inventory of their new broker. In that case, you may have to sell off that particular fund. Unfortunately, some funds and brokers aren’t even bothering to tell investors this important fact.
"Even transferring stocks can be difficult," he continued. "If your securities salesman makes a mistake on the paperwork, your account won’t transfer. … It’s become increasingly clear that too many brokers and mutual fund companies are dragging their feet. … I know of specific cases where investors have just given up altogether trying to transfer their accounts."
Levitt urged investors to complain to firms’ compliance departments and the SEC when they experience transfer delays.
The SEC chairman, emboldened by the fact that he’s leaving office in February, even took a shot at Congress. Levitt claimed "only a small handful of members of Congress … associate themselves with investor protection issues. …"He even faulted industry regulators. "Say no … to regulators who take their eyes off the interests of investors," Levitt said, adding:
"Say yes to brokers and mutual funds who care about your long-term trust rather than short-term dazzle."--Dan Jamieson
Editor's note: For any comments regarding this article, or to suggest a story idea for RR Online or Registered Representative magazine, contact Editor in Chief Dan Jamieson at email@example.com, Online Editor Rick Weinberg at firstname.lastname@example.org, Online Managing Editor Cheryl Cooper at email@example.com or Senior Editor Michael Hayes at firstname.lastname@example.org