Mihalek Law A Securities Arbitration & Litigation Firm
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December 2014 Archives

Financial advisor's compensation an indicator of ethical duty

Most individuals who have a considerable amount of wealth do not manage it on their own. Instead, they hire a financial advisor to help it grow. Because this is such a great responsibility it is important to have someone in this role who is trustworthy and can be counted on to look out for your best interests. Depending on the responsibilities of the person, it is possible that they may not always be expected to act as a fiduciary. 

What is SIPC Insurance?

The Securities Investor Protection Corporation (SIPC) is a nonprofit, membership corporation, funded by its member securities brokerage firms. Although it was created by Congress in the Securities Investor Protection Act of 1970, SIPC is neither a government agency nor a regulatory authority. It is not the securities world's equivalent of the Federal Deposit Insurance Corporation (FDIC), which insures bank deposits. SIPC's reserve funds are available to satisfy customer claims up to a maximum of $500,000, including up to $250,000 on claims for cash in the event your brokerage firm fails. Some firms obtain additional coverage for your account through private insurance companies; which is designed to protect your securities in excess of the insured limits.

Signs that your broker may be acting inappropriately

While many individuals who reside in the state of Kentucky may have the money to invest, having the knowledge to do it in a manner that is fruitful is another story. As a result, it is not uncommon for investors to turn to brokers for assistance. Though in many situations these brokers act appropriately resulting in a profit, on occasion their behavior is anything but appropriate. There are multiple things that could be a sign that the latter is occurring.

FINRA Investor Survey Reveals Strong Support for Investor Protections

The Financial Industry Regulatory Authority (FINRA) - the largest regulator for all securities firms doing business in the United States - recently released a survey of U.S. investors designed to measure perceptions of fairness and to gauge demand for additional regulatory protections. FINRA's survey of 1,000 adults revealed that 92 percent of investors agreed (62 percent strongly agreed and 30 percent somewhat agreed) that it is important to have a regulatory "cop on the beat" to protect investors and police the markets.

SEC Commissioner Thinks "Millionaires Can Fend For Themselves"

In his opening remarks to the 2014 Government-Business Forum on Small Business Capital Formation, Commissioner Daniel M. Gallagher stated regarding changes to the accredited investor definition:

SEC Approves New Rule for Valuing Non-Traded REITs on Account Statements

In October, the SEC approved FINRA's proposed rule change requiring broker-dealers to provide customers with an estimated per-share value for Non-Traded REITs. The current practice is to carry the Non-Traded REIT on the customer's account statement at its purchase price, generally $10/share. Such practice creates the illusion of the investment's stability; and it ignores the facts that: 1) 15% or more of the purchase price goes to pay commissions, fees to the sponsor and (oftentimes) affiliated entities and other organizational expenses; and 2) distributions to owners include return of capital (and not return on capital).

FINRA Attempts to Plug Loophole for Valuing Non-Traded REITs

Last month, the SEC approved FINRA's proposed rule change requiring broker-dealers to provide customers with an estimated per-share value for Non-Traded REITs. The current practice is to value a Non-Traded REIT on a customer's account statements at the purchase price, generally $10/share. This practice creates the illusion of stability, since the value of the investment does not fluctuate.