In an investor alert released by the Financial Industry Regulatory Authority (FINRA), the securities regulator warned investors about “customer advisory centers” that are becoming increasingly common in the securities industry. These offices ostensibly act as call centers for discount brokers with customers who self-manage their own accounts. But the persons working there often receive financial incentives for pushing products and services on the callers.
According to FINRA, these call centers often raise a number of compliance and supervisory concerns, including:
- Poor supervision of accounts from the center’s representatives.
- Failure to inform clients about the expenses and costs of options offered and a failure to inform clients about the availability of different classes of mutual fund shares.
- Omissions and misrepresentations of vital pieces of information, including sales charges, expense ratios, historical income and yield information, portfolio makeup and a fund’s investment objectives. If a switch is recommended and advertised as having no cost to the investor, or other phrasing along those lines, take extra care – in some cases , these switches may be subject to Contingent Deferred Sales Charges (CDSCs) and can result in higher annual fees depending on when they were sold.
- Mutual fund switches that, depending on your situation, may be unsuitable.
- IRA rollovers that are claimed to have no fees or be free.
- Not gathering information about the suitability of customers.
- Aggressive sales tactics.
FINRA recommends the following tips when dealing with a customer advisory center:
- Reach out to your brokerage firm or representative if you receive a notice that your account either has been or will soon be transferred to an investment or call center to ask questions about what will or may change in your account. Some questions you may consider asking:
- Will I pay the same fees and commissions on services provided by the call center?
- What services will the call center provide? Are they different from the services I received before?
- Will my new representative be able to recommend all types of investments?
- Will I have an individual representative focused on my account, and will they understand my investment objectives and experience, my account and will they know me personally?
- Take care if the call center representative recommends that you move your money from your current investment into another, especially if they recommend that you move your money into an investment product run by their firm.
- Ask the representative what kind of compensation they will receive whenever they recommend a particular investment product.
- Find out whether or not you can develop a relationship with an individual representative at the call center. Whenever a representative tries to sell you a product or provides recommendations for your investments, take down their full name and do a background check to ensure they are properly registered.
- Inform every representative you speak with about information pertinent to any recommendations they may, like your investment objectives, financial circumstances and risk tolerance. Give them updates on your situation as changes occur in your life.
- Understand the expenses and costs associated with each mutual fund share classes to help you decide whether or not switching from one to another could benefit you.
- Understand everything about mutual funds recommended to you by a representative, like any expenses and fees, investment objectives and the name of the fund. If you are ever recommended to switch to a fund outside of the family of funds you currently invest in, ask for a side-by-side comparison of fees to make sure that you won’t find yourself in a financially disadvantageous situation.
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