Issues arising as a result of the conduct of the investor
Investors deny the instructions given to investment advisors
There can be discrepancy in the instructions given in relation to the company, quantity and the price. For an example, an investor might state that he gave instructions for 100 shares to be purchased even though his advisor has purchased 1000 shares. In most cases, instructions are conveyed to advisors through the telephone. Hence, it is not easy to recapture the instructions given. Thus causes discontentment between the investor and the investment advisor. It is advisable to give instructions in writing.
Investors deny signing an agreement to trade on credit
At times investors complain of their investment advisors trading on credit. Past experiences reveal that at times investors have signed agreements to trade on credit without their knowledge. At the point of opening an account, investors are given a set of forms and agreements which include the CDS Account Opening Form, Know Your Customer Form, Discretionary Account, Credit Agreement, etc. Most investors sign these documents without going through the context. However, there could also be situations where the investor has not actually signed such a document while another section might sign the document and state that they haven’t signed it.
Lack of knowledge on the market
Certain investors are unaware of the interest charged on money invested on credit, brokerage fee, etc. This could cause disagreement between the two parties with time.
Investors lodge complains after the stipulated time period
This is a result of the inability of the investor to keep track of the transactions. Investors are in receipt of Brought/Sold Notes and CDS statements. Yet, seldom verify the data. It is vital that investors familiarize themselves with these documents and follow up on the transactions. Most investors go through these documents only if issues are surfaced and by that time it is too late to lodge a complaint.
High expectations from the investment advisor
Certain investors fail to understand that their investment advisors act in advisory capacity to other investors as well. Hence, they expect their advisors to continue updating them on the performance of the market in an unreasonable manner.
Investment advisors are expected to give out recommendations based on solid reasoning. Yet, they can’t guarantee the return as the market could be influenced by unpredictable factors. If the advisor has given sufficient reasons for his recommendation, investors should not blame the advisor if the price movement was not as expected.
Certain investors trade far above the stipulated credit limit
Internet trading is a popular form of trading among investors. The lack of discipline and focus on investment goals drives investors to tap on all the lucrative stocks via Internet trading. The inability to filter investment opportunities does not only result in investors trading on credit but at times even exceeding the stipulated credit limit.
If investors are unable to pay interest as a result of purchasing stocks above the credit limit they could bear or the value of the stock drastically drops, there might be margin calls. This could also lead to forced selling. Failing to understand that the fault was in their hands investors blame the investment advisor and the stockbroker firm.
Measures that can be taken to resolve disputes
Even though issues that can arise between two parties were addressed, it is important to bear in mind that they are not frequent. However, it is important for investors to be aware of the remedies in case they encounter such situations. The section will touch on these remedies as many investors are not aware of it.
You could complain to the compliance officer of the stock brokering firm within three months in writing. The officer will deal with the complaint and ensure that it is resolved expeditiously and satisfactorily.
The Dispute Resolution Committee shall adjudicate upon such complaint and if required, the committee may give a hearing to the stockbroker firm and/or the complainant, as the case may be.
If the client is not satisfied with the decision taken by the stockbroker firm or the manner in which the complaint was dealt with by the stockbroker firm, the client may refer the complaint to the Colombo Stock Exchange (CSE) in writing.
The complaint shall be dealt with by the officer/s appointed by the Chief Executive Officer of the CSE to deal with such complaints and the decision of the officer/s shall be conveyed to the client and/or stockbroker firm in dispute, as appropriate. If a party is not satisfied with the decision, such party may appeal, within a period of 21 days from the date of the decision, to the Dispute Resolution Committee for an adjudication of the decision.
The decision of the Dispute Resolution Committee shall be referred to the Board of Directors of the CSE for ratification. The decision of the board of directors shall be conveyed to the relevant parties in dispute.
Prevention is better than cure
Apart from the aforesaid remedies both parties should take necessary measures to mitigate such conflict. It is of no use to lament on financial losses caused as a result of these disputes that could have been avoided. The following tips will enable you to build a smooth relationship with your advisor/stock broker firm.
Communicate to the advisor your financial goals and financial credibility.
Inform the stock broker firm on the changes of your contact details.
Evaluate your advisor and stock broker firm. In this competitive world you will be lost with choices .Yet your investment advisor should be selected with precision and caution. Watch out for a licenced investment advisor who is knowledgeable, experienced and acts with utmost integrity.
Investors should read and understand the terms and conditions prior to signing any form of document or agreement. It is best if you fill the relevant details yourself. Don’t leave any blanks as it will prevent misuse.
It is advisable if investors give instructions on the purchase/sale of shares in writing. This could minimize unwanted conflicts between the two parties. Your instructions should be clear as ambiguous instructions are the most common cause of disputes.
If you intend to make profit in the market it is vital that you closely monitor your portfolio. Update yourself on the transactions in a timely manner. Verify the details given in the contract notes and monthly statements.
"It is the neglect of timely repair that makes rebuilding necessary”
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Continued from last Monday
