Investor Rights: Protecting Investors’ Welfare, Interests

Video Transcript

Kelly Kesner: Hi, I’m Kelly Kesner here with another session of Investor’s Watchdog University. I’m here with Pat Huddleston, the founder of Investor’s Watchdog and today we’re going to talk about investor rights. Pat, would you tell people a little bit about what they need to know about investor rights?
Pat Huddleston: Absolutely, Kelly. First of all, you need to know that you have them. Far too many people think that the investment world comes with risks and it certainly does, but because of that fact that if they suffer a lost, they just have to take it, that there’s no level or standard of care, no substantive rights that they can expect to be fulfilled, but that’s not true. So, among the things that people can expect from the securities industry, among the rights you have as an investor is the right to just basic fairness and good faith.

We see this violated a lot of times in what we call “churning cases”, which we’ll talk about in more detail in another session. You have a right to know all the material facts about an investment, the risks, what it’s going to costs you to own that. You’ve got a right to know those things and if a broker doesn’t tell you, he’s violated your rights. A really important one, you’ve got a right to hear recommendations that are suitable for your experience, your investment adjectives, and your risks tolerance. That means if you a very safe, secure, want to protect your principle kind of investor, your broker doesn’t need to be recommending penny stocks or junk bonds to you.
Kelly Kesner: You also have a few other rights. You have the right for your broker to disclose any conflicts of interest he may have. If he is recommending products that may be internal, part of his company that would be a conflict of interest and you have the right to know that. You also have the right to know what fees the broker is charging and what if they’re prices. If he’s not going to answer that right away there may be some warning signs there. And you have the right as an investor to change your broker or advisor for any reason. You’re not held hostage to anyone and those are some other rights that you’ve got.
Pat Huddleston: I’ve actually seen in some very extreme cases, Kelly, and maybe you have too, especially with elderly investors, where they do sort of get held hostage. They’ll just get fed up. The brokers calling them all the time, harassing them, getting them to buy things that they don’t want and they say, “I’m moving my account.” And the broker actually says, “You can’t. I’m not going to let you.” And because the investor doesn’t know they have that right to change they wind up in a very difficult situation.

So, if you complain to management about violation of any of these rights, you need to know that you have the right to a prompt response from management. The whole system is based on adequate supervision of the people who are talking to you over the phone or who you’re meeting with in the office. So, if management doesn’t respond to your complaint that is a separate violation of one of your rights as an investor. And then finally and really important, you’ve got a right to have the people who you’re dealing with comply with the law. The securities industry is highly regulated. The laws are strong, and important, and substantive. They can protect you. You’ve got a right to have the people who are taking care of you and your money comply with them.
Kelly Kesner: We’ll be going in to each one of these rights in further detail in the upcoming sessions, but for right now we just wanted to introduce you to them and we’ll see you next week. Have a good week.

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