One of the first things a broker learns is how to sign up customers. But some attorneys and compliance pros warn that brokers and firms are falling short in getting customers to sign new account agreements.
Many firms, including most of the wirehouses, don't require customers to send back a signed new account form. Defense attorneys say this causes problems when they have to defend a customer suit and the customer can claim the financial information on the form is incorrect.
Yet, "even if they do sign it and send it back, it doesn't matter anyway," says one Morgan Stanley Dean Witter broker. "If there's a problem, then there is going to be a problem." He says he does send out new customer agreements, but he rarely gets them back.
Clients "don't need the [customer] agreement to trade," says Nancy Lininger, president of The Consortium in Camarillo, Calif., a compliance consulting firm.
The Morgan Stanley Dean Witter broker, who also had previously worked in the independent market, says, "At the independent shops you have to have it signed and sent back, but here at the wirehouses you don't."
A MSDW spokesperson would not comment on the firm's practices. Other firms say they don't see lack of signed customer account agreements as a problem. But one broker at PaineWebber says current industry practice in handling new account agreements is a potential problem but that nothing will change. Firms aren't going to turn accounts away because they lack a signed document, he says.
Lininger, though, says firms can take action. "They can refuse to trade or freeze commissions on the account to get the broker on the phone to the client" to ask for the signed document.
