Why You Need To Watch Your Stockbroker Like A Hawk

Broker-dealers are in an industry overseen by the Financial Industry Regulatory Authority (FINRA), but mostly, no one is closely watching them. Making a good profit is their motivator. Sometimes, profit gets all too tempting and those in the position of having control over another’s money take advantage of that power.

One wants to believe that brokers are generally honest, and that they follow the rules. These rules include working for the benefit of the client, not just for themselves. And things can go terribly awry when greed gets the better of some in the field. Clearly, not all brokers are dishonest, but a minority definitely are.

The Schottenstein Case

As reported by Richard Eisenberg in Next Avenue, the Beverly Schottenstein story is a shocking example. In that case, the financial abuse of this wealthy woman was committed by her own grandsons. As described in the article, Ms. Schottenstein’s two grandsons, Avi and Evan, were her brokers at J.P. Morgan Securities for five years. Who would expect that one’s own grandchildren would be manipulating her large accounts for their benefit, to her detriment? It would be for most of us, unthinkable. But this woman in her 90s was sharp and she asked questions of her grandsons about her account. They told her they were doing well for her. She did not get the detail she wanted. She then asked them to check with her before doing trades in her account. They did not comply. She got very suspicious when they stopped sending her the normal account statements she had been receiving.

This was not a passive elder who took others’ word for things. She called those all the way up the chain of command. She spoke directly with CEO Jamie Dimon and reported her frustration. But nothing happened. As it later came out, J.P. Morgan was making millions of dollars in commissions on Ms. Schottenstein’s account, gotten through excessive trading, called churning. That practice can be hidden from an account holder unless one demands accountability for every trade. Avi and Evan shared in those ill-gotten, huge commissions.

The grandsons arranged for Ms. Shottenstein to be frozen out of her own accounts. They falsely alleged that she had dementia. Their actions eventually led to her filing a claim of elder fraud with FINRA. Claims with FINRA go to mandatory, binding arbitration. She is 94 years of age and was awarded $19 million. Of course, J.P. Morgan and grandsons are fighting the award.

The Takeaways

If this stunning elder financial abuse could happen to a sharp, alert woman in her 90s, imagine how easily it could happen to anyone who has a brokerage account and is not paying attention. What is shows me, and I hope shows everyone, is that you need to insist on detail about trading in your account. Review the monthly statements carefully or have an accountant or other skilled professional review them for you. Churning accounts is a sneaky way for unethical brokers to generate many dollars in commissions. Unnecessary and excessive trading can go unanswered unless the account holder or their representative asks questions.

Finally, be careful whom you trust with managing your money. The sad fact is that family members and caregivers are the ones who steal the most from elders. They know their victims and can readily take advantage. If you are the adult child of an aging parent, especially one who shows signs of memory loss, ask for permission to review their financial records. You don’t have to be an expert to see a lot of trading in one’s account. Trades are listed on the statements like the ones Ms. Schottenstein wanted to see and was eventually precluded from accessing.

Stopping Elder Abuse

Sometimes, the best way to end suspicion and lack of transparency by any broker is to take the account away from them and move it elsewhere. There is no need for “loyalty” to any firm or person who has caused you or your loved one to be suspicious of what is going on. The huge red flag is lack of detailed information. Lack of transparency should cause you to believe that someone is hiding something you are entitled to see. Just by asking for detail, you could be stopping financial elder abuse.