Client changes mind

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Jan 23, 2006 6:15 pm

client purchases 100K mutual funds A shares paying 4% sales load.


two business days later they claim they want to cancel trade because they weren't told of the upfront charge.


client signed all supporting paperwork.


what are the client's options?


who takes any losses?


scrim

Jan 23, 2006 6:32 pm

The client can either keep them or take the hit.


Tell us more about the "supporting paperwork."

Jan 23, 2006 9:25 pm

A similar thing happened to a guy in my office today.  He bought some tax-free ETF's last week and the client changed his mind over the weekend.  He actually told the client he would try to get his trade canceled.  I think he's worried about losing the client.

Jan 24, 2006 8:33 pm
rrbdlawyer:

The client's options are numerous:  They
can file a written complaint that may result in a "yes" answer on your
U4.  They can file an arbitration complaint that may result in a
"yes" answer on your U4.  They can file a complaint with a
regulator (SEC, State, SRO), which could result in an investigation of
you --- or the regulators may initiate an investigation upon learning
of the allegations in the client's complaint.


On your end, you may be setting forth a standard "buyer's remorse"
case in which you may well be able to present strong defenses against
the client's claim of non-disclosure of risk.  Further, the signed
paperwork may bolster your position.  You might also be able to
counter-claim against the client in any proceeding alleging fraud and
defamation.


Nonetheless, the course most BDs would likely take here is to cancel
the trade and attempt to ding the RR for all/part of the losses (and
reverse the commissions).  The "upside" for the firm is one busted
trade. The downside for the firm is the entire mess detailed in the
first paragraph (plus legal fees).  As you can see, the math is
compelling from the firm's perspective and the unfairness of this type
of customer "extortion" is infuriating from the RR's perspective.


Life sucks.  Then you die. 





This happened to me several years ago, after 2 days resulting in a
couple of hundred points dropping in the market.  Firm busted the
trade and the firm split the "error" with me...cost each of us just
over $2,000.  Then we asked the customer to find another firm or
work with the discount desk.

Feb 5, 2006 8:51 pm

That really sucks...sorry to hear it Scrim..

Feb 6, 2006 8:14 am

Just curious after two days how did he "find out" about the load? If he wasn't informed, it would of been to soon to receive confirmations?