FEE-BASED BROKERAGE ACCOUNTS

FEE-BASED BROKERAGE ACCOUNTS

By:  Michael J. Ernst and Rachel A. Humphrey

The Financial Industry Regulatory Authority (FINRA) reports that it is seeing an increase in the number of claims filed by elderly investors that allege that their brokers moved them improperly into fee-based accounts, commonly referred to as “wrap accounts.�

Assets being held in wrap accounts are up over 50% in the past five years, into the trillions of dollars.  According to some reports, the overwhelming majority of fee-based account clients are over the age of 70, with many over 80 years old.  The arguable benefit of a wrap account is that a broker, earning an annual percentage fee for his or her firm, will presumably not recommend that clients trade excessively solely to increase his or her own commissions.  Thus, the industry originally saw wrap accounts as a “win� for investors.  However, many fee-based accounts are based on equity versus bond holdings which, according to claimants’ lawyers, lends itself to potentially-improper transfers and investments with the result that brokers invest more heavily in higher fee-earning investments.  While not every move to a fee-based account is per se improper, or even the transfers within same, lawyers representing investors are looking for more cases involving these fee-based accounts.

Stokes Lazarus & Carmichael LLP has represented companies in corporate and litigation matters for over 30 years and is rated “AV®� and “PreeminentTM� (5.0 out of 5.0) by Martindale-Hubbell® (the highest rating given), which reflects “Preeminent� legal ability and “Very High� general ethical standards.  SLC is experienced in representing retail broker-dealers in arbitration and litigation.  SLC provides sound legal advice at reasonable cost nationwide.  If you have any questions regarding securities or FINRA arbitrations, please contact Michael J. Ernst at mje@slclaw.com or 404-352-1465 ext. 41.