Normally, I have no need for protocol. But what is the etiquette on calling industry regulators?
I’m doing the tax return for a single mother whose husband, a state trooper, was killed in the line of duty. She makes $30k per year as a teacher in a private school. And she has a broker who lost $16k in 2015.
How did he lose $16k? By trading options contracts. For a 31-year old single mom. Who makes $30k per year.
And he charged her $10k in management fees while doing it.
Wow are you kidding me? This is why the DOL rule will be a good thing. There is no way she realistically had any educated idea of what was going on.
I assume the state has a decent life insurance in TX for an officer that passed in the line of duty? Whenever you hear a story about options trading in accounts like that you tend to hear about some fraud.
What is the street address of the broker?
Is he a canis lupus?
Size of account? Other assets?
Options trading alone isn’t indicative of anything bad. Used properly they can reduce risk and should help her reach her goals. I’d say it’s the excessive risk taking and failure to follow the KYC protocol that’s the issue.
i.e. please don’t go getting my industry regulated any more
Don’t know. (I only have the 1099, which doesn’t show the balance.)
None.
Edit - here’s a little more information: She has two accounts.
In the options trading account, he charged $6,700, earned $5,800 in dividends, and lost $16,500 on options sales.
In the other account, he earned $1,600 in dividends, and had $1,700 in capital gains. He charged $3,200 to manage that one.
IN both accounts, she is invested in vareity of ETFs. The broker is writing options on the ETFs–mainly IWM, QQQ, and SPY.
she’s being swindled.
your duty lies with the client, talk to her about it first. If she’s aware of the risks, it is what it is. otherwise, call up some of her late-husbands state trooper friends and get them to visit the guy…for a goold ol’ PHONE BOOK BEAT DOWN
Could be sitting on gains for all we know, but not really relevent. Fees probably are high, but are disclosed. Doubt there is anything there legally. You’re allowed to be stupid and take risk. If raping people was not legal, Edward Jones and Raymond James would be out of business. Back to work.
On a side note, I was told by a client that his CPA had questions about his 1099, not tax questions. I immediately suggested a three-way. Never happened. The clown was just trying to drum up FA business. I love that shit. We all make fun of our own designation, but the very mention of the credential causes these monkeys to crawl back into their hole. Most of them are trying to push “product”. Bring it!
Based on the dividends, it sounds like she has $350k to $400k in her account. So, losing 4% is not out of line in a year when SPX declined by that much. He seems to be charging 2-2.5% in management fees, which is high, but I don’t know if it is amorally high. As for the loss on options: the specific trades really need to be examined. Maybe he just bought puts to protect her from a downturn, but those puts expired out of the money. The broker might still be mishandling her account, but nothing stated so far clearly establishes this.
I agree that we don’t know the size of the account. She could have a hundred billion dollars of nondividend paying stocks that I don’t know about.
But I have a hard time believing that an options trading strategy of any kind is appropriate for a 31 year-old single mom who makes $30k teaching at the local church kindergarten.
It sounds like a great investment strategy.
For the broker, that is.
He’s a thief.
Options can lower risk, as you know. But yes, he is probably worse than a used car salesman, but it doesn’t mean he is breaking the law.
Hang on, is the broker not just writing covered calls on her ETF holdings? That’s hardly an aggressive or irresponsible strategy. That’s what I’m seeing from Greenie’s post. Sorry, but this is far from a sure fire fraud or swindle. A covered call strategy on blue chips is a really low risk play, lower than owning just ETFs outright. Unless I’m missing something obvious here, I’m surprised a room of Charterholders don’t get this.
Sounds like she has a case against the broker. Both suitability and the Prudent Man Rule would apply. With the way the winds are blowing, the court would already be on her side.
Edit: I’m not implying fraud. The broker is probably just an idiot. But, you can get sued for that.
Why don’t you just ask her if she would be willing to provide you with a copy of her investment account statements for last year, including transactions?
FTFY
^ha
Given her income and approximation of assets, it is fairly possible that generating income may have been part of the objective, and writing covered calls would be a simple way to achieve that. She could try negotiating fees down, but it seems premature to throw a broker to the wolves for a loss in a choppy market.
$10k in fees on a $400k account isn’t even ridiculous, it’s less than Canadian mutual funds charge in MER. And this is a custom account. And again, writing covered calls on broad based ETFs is a reasonable suitable strategy for someone trying to maximize income. Quite frankly, I don’t even think this broker is that far offside at all. He might be a bit expensive, I don’t know U.S. fees for this stuff. But everyone raging on this guy for *gasp* writing options sound like a bunch of clueless people with zero knowledge of finance.