Tracy Stoneman - Stoneman Law
Has Been Quoted In:

10 Reasons to Hang Up the Phone When a Stockbroker Says...

I often wonder how a person who drives across town to save $10 on a major appliance can be the same person who in the span of one telephone call will write a substantial check to a complete stranger to purchase an investment. Stockbroker "cold calls," as they are known, often originate from distant locations and tout stocks typically unknown to you. What may sound like a great, no-lose deal on the phone may turn out to be your worst financial nightmare.

The securities industry is one of the more highly regulated industries in the country. Unlike a used car salesman, a stockbroker must pass a series of examinations and be licensed by the state. He has to adhere to state and federal law that governs his conduct, as well as rules of the National Association of Securities Dealers ("NASD") and the New York Stock Exchange ("NYSE"). The NASD and NYSE have specific rules designed to reign in a stockbroker's communication with the public during a "cold call," for example.

Yet, no one is on the telephone with stockbrokers and their clients or potential clients when a sales pitch is under way. The stockbroker is required to act in your best interest, however, that paradigm stands in raging conflict with the reality that a stockbroker is paid based on how much he sells -- even if he has a title like financial adviser. In the future, before you whip out your checkbook and excitedly write a check and send it to the stranger on the other end of the line, keep your ears open the following "red flags":

1. Yap, Yap, Yap

Is the stockbroker doing all the talking? Stockbrokers are required to learn essential facts about you before recommending an investment. The NASD requires a stockbroker, before executing a transaction for a customer, to obtain information about your financial status, your tax status, and your investment objectives. If you are being pitched a low priced security, you should be asked about your other security holdings. If the stockbroker is doing all of the talking, then he or she simply cannot know you well enough to make a recommendation to you.

2. I'm Buying it in my own Account and in my Mother's Account.

It is not a per se violation for a stockbroker to make this statement. However, you should know that there are often brokerage firm policies that discourage this type of statement. Realize that just because the investment may be suitable for the stockbroker or his mother, that does not mean that it is suitable for you. There is also the possibility that the claim is not true, and you will never know it. Such a statement, while titillating, may leave you in the dark regarding how much stock was bought, what price was paid, or if the stock was subsequently sold.

3. It's going Fast -- you need to Fed-Ex me a Check.

This is usually a ploy to short circuit your ability to ask questions, seek outside information, or receive and review written materials. Don't fall victim to the undertone of, "Everyone else is buying it and you should too."

4. You can't Lose. It is a Sure Winner. I Promise. I Guarantee it.

If you hear these words, don't even waste your time or breath. Hang up. It is a direct violation for stockbrokers to assure clients or potential clients of the profitability of a particular investment. Words like "promise" and "guarantee" are the reddest of red flags. The above remarks also cry out, "There is no risk in this investment," which is not true. All investments involve some degree of risk. When securities expert and investment advisor Douglas Schulz of Colorado Springs hears such claims from stockbrokers' cold calls, he tape records them and sends the tape to the state securities board.

5. You don't need to Read the Literature.

For almost every investment, there is some kind of literature that goes with it -- usually a prospectus, research or analyst reports, or other documentation about the company. You may not have the time, expertise or desire to review and understand this material, but the point is that the stockbroker should not discourage you from receiving or reviewing such information.

6. I'm a Specialist in....

There are very few "specialist" stockbrokers and those who are typically sell to institutions, not individuals. The vast majority of brokers are generalists, which is the best type because they have a broad understanding of all investments. You will find that these so-called "specialists" are specializing in either what they are interested in that day or what their firm is selling that day.

7. I won't Charge you Commissions.

No stockbroker is calling you to sell you something on which he is not making some sort of commission. You will end up paying it one way or another.

8. I Only Make Money if you Make Money.

It would seem to make far more sense for stockbrokers to be compensated based upon the success of their clients' portfolios -- but that's not the system. Stockbrokers make commissions no matter how poorly your investments do. In fact, they stand to make more money if your investment does poorly, because the next phone call you get may be urging you to sell and buy something else. The stockbroker will make another commission on the purchase of the new stock and may even make a commission on the sale of the old stock. A double whammy.

9. You should Buy 100,000 Shares.

This might be okay if you have told the stockbroker that you buy in large quantities. But if you have not or if the stockbroker has failed to inquire about the money you have available for investment, recognize this red flag. It says you have a stockbroker more concerned about the size of an order (that is, his commission) than what is suitable for you.

10. Don't Worry About it. Trust me.

If a stockbroker says this to you, do worry and don't trust. The primary way evil doers take advantage of their victims is by dismissing their concerns.

You can protect yourself by keeping your ears open for the above telltale signs of trouble. If you experience one or more of the above indicia of misdeeds from a stockbroker "cold call," just hang up. If you encounter any of the above from your current broker, consider having your brokerage account assessed by a third party or moving it.

Contact Ms. Stoneman, Stoneman Law (800) 783-0748 Free Consultation, Nationwide Representation

Client Reviews
If you suspect securities or brokerage fraud against your hard-earned investments and need an advocate, call Tracy Pride Stoneman - NOW! I was a victim of churning, improper sale of unsuitable private placements, compliance violations, and more. I blamed myself at first and didn't think I had a case, but I was referred to Tracy after another lawyer balked, thinking all was lost. She took the emotion out of it, got down to the facts, made the case, and in hands-on fashion worked hard for the best result possible. She's an excellent communicator and the kind of experienced securities arbitration lawyer you need in your corner. Ms. Stoneman achieved a settlement for me that far exceeded expectations. She has my highest recommendation. Jeffrey B.
Tracy was a wonderful lawyer in my and my husband's huge case against Prudential Securities. She was relentless in going after the stockbroker and firm, determined to obtain all of the documents that helped our case and hurt theirs (that's why the firm didn't want to produce them!). No matter what curve ball the brokerage firm threw, Tracy came up with an angle to overcome it. My husband always commented how smart Tracy was in handling our case. Throughout it all, Tracy was extremely cheerful and easy to work with - unlike most lawyers I know! Carolyn W.
I think that you did a great job for the Tylers, and I believe you are one of the most organized and effective attorneys I have worked with. John B.