Wednesday Word: the Howey Test

By: Caitlyn Scofield , Spring 2019 IAC Student Intern

Have you ever looked at your bank account and wondered where your money went? As an investor, you ask yourself the same question “what am I putting my money into”? There are many investment opportunities out there. The government has put into place certain regulations for investments. These ensure that certain information about specific investments are provided honestly and accurately to the investor. This is done through the Securities act of 1933 and the Securities Exchange act of 1934.  Yet not all investments are covered under these acts, only those that are determined to be securities are regulated in this way.

“How do I know if my investment is a security” you might ask?  In 1946, the Supreme Court answered that question by developing “the Howey Test”. Continue reading

Investor Ed Crossword Puzzles: Prohibited Conduct

All forms of investing carry some degree of risk. Brokers must be diligent in protecting their customers from additional, unnecessary risk. Brokers must never guarantee market or product performance. Unless a customer has given discretionary authority to trade on a consumer’s account, a broker must obtain authorization  or permission before conducting transactions. It is important to always read all documents before signing so you know whether your permission is required before a trade or if a broker can make a trade without express permission. Brokers should never recommend unsuitable securities, nor should they ever misrepresent a material fact about the product.

FINRA’s Best Execution and Interposition Rule 5310 requires a broker to use reasonable diligence in ensuring a customer’s transaction is executed at the best possible price available. A Broker should never charge excessive commissions or mark-ups on the purchase or sale of a security.

Furthermore, a broker engages in prohibited conduct if he or she engages in the switching of one mutual fund for another without a legitimate purpose. A broker should not remove a customer’s funds or securities from the customer’s account without the customer’s prior authorization. FINRA also prohibits brokers from trading ahead. FINRA Rule 5320 states a broker should never trade ahead by placing an order for the firm’s account before entering a customer’s order.

Test out your knowledge with this crossword puzzle: Continue reading

Wednesday’s Word: Alternative Dispute Resolution

By: Brook Ptacek, Spring 2019 IAC Student Intern

Alternative dispute resolution or “ADR” is where parties agree, by contractual agreement or otherwise, to resolve their dispute outside of the court system.  It is another forum to get your matter quickly and efficiently resolved…and most importantly, a way to save extra money spent on attorney fees and court costs to reach a resolution.

There are two main forms of ADR: arbitration and mediation.  In the Investor Advocacy Clinic, you will hear us refer to arbitration a lot.  The main difference between the two is that the rulings in arbitration are binding, while mediation voluntary. Click here for FINRA’s break-down comparison. Continue reading

Know When to Run… Don’t Be A Gambler

By G. Kevin Mathis, Investor Advocacy Intern

On February 7, 2019, the Security and Exchange Commission (SEC) charged Robert Alexander (Alexander) with fraudulently raising approximately $9 million.  The SEC complaint alleges that Alexander sold investments on Kizzang LLC defrauding more than 50 individuals.  Alexander allegedly claimed that investment funds would start up his online sweepstakes and fantasy sports entertainment services company.  Instead, Alexander allegedly used the investors’ funds for himself. Continue reading

Accounting for Your Lifestyle in “Retirement”

By Caleb L. Swiney, Spring 2019 IAC Student Intern

This Wednesday’s word may seem simple, but there really is no universal definition for “retirement.” The choices that you make throughout your life, as both an investor and as an individual, will have a profound impact on how secure you are in retirement. Recently, FINRA published an article titled, “Kids Will Turn Your Hair Gray,” noting that 66% of people with dependent children are worried about running out of money in retirements, but that only 54% of people without dependent are worried about running out of money in retirement.

On its face, this article would seem to be about managing retirement income in relation to childcare expenses. What this article discusses, however, are general retirement guidelines that will help any investor feel secure in retirement. Continue reading

On The Wisdom of the Cynic

By: Esmat Hanano, Spring 2019 Intern

The prevalence of social media in our everyday lives has led to a new type of financial services representative. For ease of reference, I’ve dubbed this new breed of financial services representative the “seize-your-moment representative,” or SYMR. Interesting name, right? Well that’s one of the main characteristics of these representatives: they pique your interest and arouse your natural sense of curiosity with an opportunity that begs you to “seize the moment!” Once they have your attention, it’s a full-court press to get you to sign up with them. Some other identifying features of SYMRs are a heavy reliance on social media to sell financial services and products, excessive use of inspirational quotes and memes, and dubious testimonials that claim to demonstrate the success awaiting anyone who joins their “downline.” Continue reading

Investor Ed Crosswords: Staying Informed and Evaluating Investment Performance

According to FINRA Rule 2340, general securities members must disburse account statements at least once every calendar quarter.   The account statements informs you as an investor because you can evaluate the quarterly performance of your investments.  Evaluating your investment performance requires you to consider your rate of return and your yield.  Continue reading