Dueling Trend Lines on Complaints

February 11, 2004
By John Churchill
Registered Rep.

Brokers have become more attuned to investor complaints in recent years, but they must be forgiven if they’re having a hard time drawing conclusions from the trend numbers reported by regulators.

Indeed, the organizations that track investor complaints most closely—the SEC and the NASD—say the number of complaints sent to their respective offices last year suggest dramatically different things. The SEC reports a complaint-volume decrease of 14 percent in 2003 (to 70,574) while NASD reports an 8 percent increase (to 4,871).

Byron Keeling, a partner at Houston-based Holman & Keeling, says the disparity probably is a function of the agencies taking snapshots of differing market periods.

“The SEC is getting more current, immediate information, consistent with the current market,” he says. “Whereas the NASD may just now be processing filings for when the market was at a lower point and investor anger was much higher.”

If this is correct, the NASD numbers for 2004 should start to level off, as that agency’s actions catch up with the SEC filings. But it’s pretty clear that things continue to be very busy at NASD.

According to its report on 2003, NASD set records “for both the number of new enforcement actions filed, 1,352, and the number of individuals barred or suspended, 830, from the securities industry as a result of violations of securities rules and laws.”

In addition, the number of arbitration cases filed rose to 8,945 from 7,704 in 2002.

Lawrence Klayman, an attorney at Klayman and Toskes in Boca Raton, Fla., says the NASD figures demonstrate that “the regulators and self-regulators have been extremely slow about looking for problems, and then taking action when things are wrong and need fixing.”

The SEC report provides some insight into the things that are irking investors most. For instance, complaints about “fees, commissions and administrative costs,” rose 7 percent last year, even as the overall number of complaints dropped. The only other complaint category to see an increase was corporate bankruptcy, which rose 8 percent. Further, the SEC received more complaints regarding broker/dealers than any other type of entity, including issuers, mutual fund companies and transfer agents. The top five categories of complaints against broker/dealers were: Fees, commissions, and administrative costs, up 8 percent; Misrepresentations, down 11 percent; Unsuitable recommendations, down 6 percent; Unauthorized transactions, down 20 percent; Transfer of account problems, down 16 percent.

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