Does your broker have a conflict of interest? The answer, most likely, is yes. The traditional form of compensation received by brokers is a commission each time an investment is bought or sold in your brokerage account. This compensation structure gives your broker financial incentives that are not aligned with your own. By receiving a commission based upon the frequency of trades in your account, a broker has a financial incentive to engage in more trades, regardless of whether that is actually in your financial best interest. Under the commission-based compensation model, there is no direct link between the amount of the broker's compensation and the financial performance of your account.
The End of Forced Arbitration?
Whether you realize it or not, if you have an account with a brokerage firm, it likely includes a mandatory arbitration provision, which provides that you waive your right to file suit against the brokerage firm in court. Instead, all disputes with the brokerage firm will be submitted to arbitration through the Financial Industry Regulatory Authority (FINRA). FINRA (formerly known as the National Association of Securities Dealers (NASD)) is a self-regulatory organization, funded by the brokerage industry.
Bipartisan Bill Introduced to Empower SEC to Seek Restitution For Investors
On March 14, 2019, Senators Mark R. Warner, a Democrat from Virginia and John Kennedy, a Repuplican from Louisiana, introduced the Securities Fraud Enforcement and Investor Compensation Act, a bipartisan bill that would empower the U.S. Securities and Exchange Commission ("SEC") to seek restitution for investors harmed by securities fraud. Many investors do not realize that under current law, the SEC often does not have the ability to make investors whole, because it is only authorized to seek disgorgement of profits from wrongdoers, not restitution of the full amount of damages that they inflict upon investors.
VIX Index Investment Products Unsuitable for Most Investors
Investments in VIX Index-linked investment products raise suitability concerns for retirees and other retail investors. The Financial Industry Regulatory Authority (FINRA) has recently issued a regulatory notice warning member firms that VIX-Index linked products "are highly likely to lose value over time." FINRA further warned firms that such products may not be suitable for retail investors, "particularly those who plan to use them as traditional buy-and-hold investments."
