An Investor’s Story with Serious “Broker Red Flags”
I was talking to a new client (we will call him John) this past week who mentioned to me that he had read my book, Fire Your Broker. He told me how he really enjoyed it, but that he also had a story that could beat the one I told about a stock broker milking my stepfather out of three quarters of a million dollars. He had my ear.
John’s experience happened a few years back with a broker who was picking individual stocks. For several months, his broker had made some good recommendations. John followed them and made money. He was happy. But one recommendation did not go so well. The trade involved buying a stock that he had never heard, and in fact, made him feel a little uncomfortable. But, because his previous trades had done well, he decided to risk it and took the broker up on his recommendation.
The trade was made, and from that day forward, the stock seemed to go down each week. But his broker, despite the negative results, didn’t even call. So after this went on for two months, my client called his broker. Here is how this frightening conversation went.
John first asked his broker about the fall of the stock. The broker responded, “I have been watching the stock and am making moves to get out of it. As a matter of fact, I was just about to call you.”
John asked when they would sell the position. Here’s the startling response, “Well, I have been calling all my clients alphabetically. Since your name begins with a ‘W’, I did not get to your name until now but I am planning on selling today.”
Wow, talk about poor management and inefficiency. This broker had no plan for an immediate exit when necessary. Sad but true, this still happens in today’s connected financial world.
The moral of this story is this—know that your financial management team has systems in place to trade efficiently and the plan in place to handle any issue. Keep in mind, this is not only a systems issue, it’s a staffing issue. If the broker had the appropriate staffing level, he should have been able to handle all trading within a day. The moral of the story is this— know your wealth manager and ask him what procedures he has in place to handle the various market situations.
For more “Broker Red Flags,” read the ‘Dirty Little Secrets’ (chapter 10) section of my book, Fire Your Broker, or visit our websites www.fireyourbroker.com and www.campbellwealth.com.
Have you been a similar situation, how did you handle it? Share your stories.
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