SEC Official Says Brokerages at Top of Investor Complaints

Brokerages were the focus of more investor complaints to the Securities and Exchange Commission in fiscal 2005 than any other type of business, SEC Commissioner Cynthia A. Glassman said Wednesday.

For the year ended Sept. 30, about 31% of all complaints lodged with the SEC concerned brokerages. There were fewer complaints about corporations, mutual fund companies, investment advisors and transfer agents, she said.

“Unfortunately, it is not an anomaly but rather is consistent with complaint data from earlier years,” Glassman added in prepared remarks to be given at a conference in San Diego.

In most cases, she said, brokerages could avoid complaints by spending more time and effort educating investors.

The most frequent complaint, tallied 622 times, involved “transfer of account problems,” such as an investor who has switched brokerages being unable to transfer a proprietary fund from the old brokerage into a new account, she said.

Second most common, at 533, were complaints about unauthorized transactions, such as an investor telling the SEC that a broker traded in an account without permission. Often these complaints involve permissible margin calls, she said.

“The real issue here is that the customer doesn’t understand the practical ramifications of a margin account,” said Glassman, who has served nearly four years on the SEC.

There were also complaints from investors about problems with closing accounts, unsuitable investment recommendations, and errors and omissions in account statements.

“What I hear is that often it is extremely difficult for customers to decode their statements,” Glassman said.

“The statements themselves might not have any errors or omissions, but if the customers do not understand the information in the statements, they conclude that the statements are somehow deficient,” she added.