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When does a broker want your opinion?

Q4 is a time of year that many brokerage firms send their customers a communication describing their relationship with the customer and, in many cases, requesting that their customers agree that they are happy with the services being provided. Some firms go as far as asking their customers sign and return the letter.

Why would a brokerage send such a letter? Since you must already have an existing account and agreement with them, they are not looking to gain your business. Since a brokerage firm is barred by compliance rules from using endorsements from their customers that is not the purpose. The letter cannot be intended as a retention tool, since it doesn’t offer to do anything extra or special for you but instead asks for your approval of what is already being done.

What the letter is, of course, is a CYA for the brokerage firm for a wide variety of activities it may engage in,which activities might not be in your best interest or suitable for you. Whether it is purchasing particularly risky securities for your account, excessively trading in your account, failing to disclose commissions or benefits received based on the products recommended and purchased for your account, or something else entirely, the brokerage does not want the activities to come back on them.  Hence the letter.

The tell is the request that you sign and return the letter or including wording in the letter to the effect that if you do NOT respond, then they can assume that what they are doing is fine with you. This could amount to your signing away or waiving rights and claims you may have against the firm. The appropriate response is to read the letter closely, review account activity and specific purchases as well as how the firm has communicated with you previously. If something seems out of the ordinary, then get a second opinion, preferably from someone in the industry who will have your best interests in mind and can deliver an objective view of whether there is or may be a problem.

At that point, you can move ahead with responding to the letter in the appropriate fashion. 

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