Is it legal for a broker to put a retired person in all agressive stock porfolio? At what point do you bail?

Question

Granted the market is diving. We inherited the broker from my moms estate. The porfolio is well deserified, but way too agressive. I kept asking if this was wise and he kept saying its the only way to recoup $ and grow and I was safe. Yeh yeh..stupid me. Is it smart to even try to bail and pull what remains now and put it in an annuity and is just to be chalked up to ''bad'' advice.

Answer 1

Don't bail now! The market is seriously down. You don't want to sell low and buy high. Wait a year or so, until the market recovers. Then move your accounts to a broker (better still, to  a Vanguard or Fidelity mutual fund) that you are more comfortable with.

Answer 2

No.  And and possibly the broker could get in trouble for doing that.  But putting it into an annuity isnt much better.  The annuity salesman is probably going to make the most money.  They have high fees and unattractive tax issues, compared to stocks and mutual funds.  You're better off with mutual funds that meet your tolerance for risk.  You might want to check out your broker at finra.org.  Click on brokercheck.

Answer 3

The broker is NOT acting in your interest.

You are certainly not obliged to continue with him, especially since he is putting your assets in a very questionable asset allocation.

The portfolio for a retired person should be 60-70% bonds and cash, and only 30-40% max in stocks, and not aggressive ones.

The market is in a deep downtrend, and I am expecting it to go down to about 10,500 or so before any base begins to form.  I think you are very likely to lose another 20% of your money if you leave it in there.

Pull it out, put into short term cash, and wait for the rest of this horrible economy and the housing & subprime & oil mess to play out a little more.

Answer 4

When do you "need" the money? If you need it next Tuesday, then take the loss and bail...but if your time horizon is longer than a week,  there are only two possibilities: either the market will recover (returning to its 200-year average return of 10-12% a year), or the market won't recover, and the world will quite literally come to an end, in which case an annuity (or even a big suitcase full of gold doubloons) would be worthless anyway!

P.S. The broker would probably LOVE for you to move into annuities, they pay better commissions to whoever sells them than almost any other financial instrument...

Answer 5

Take control of your money. Find a different broker and put the money with him or her. You could also try to manage it yourself,  but maybe you don't feel comfortable doing that. Get some recommendations for some brokers that others are using and are satisfied with their services.

Answer 6

Based on what you wrote here--"he kept saying its the only way to recoup $ and grow and I was safe...". Your broker seems to be taking on more risks in order to get better returns for your money. How can your money be safe when he is taking chances with it?

How is the performance of the portfolio under the broker's management been in the last three years? Five years? A drawdown of about 25% for any given year is acceptable in the industry, but may not be for you. If your portfolio has sufferend two drawdown years in a row, it's time to look for a different fund manager.

If you want to keep this fund manager, then make sure that your portfolio under their management be non-discretionary. This means that they cannot make buy and sell actions on your behalf/without your approval.

It's up to you if you want to close your account with that broker and take your losses.

Here's how my thought processes will go:

- if i keep the positions with this bloke-r, the value of the portfolio might, and will go down some more since the economy is still showing signs of weakness.

- if I close the positions, I am going to have to take some losses. Will there be enough capital left to invest in a different asset class? And in doing so, fire this broker.

Either way, you can see that you are in a losing position. If there's still enough capital left if you move your assets, then do so, asap. And fire the broker.

Talk to an independent financial advisor on what would be best for your situation. Also, when you look for a different broker, look for one that offers Pay for Performance. This means that the broker or fund manager will only get paid when your investments under their management makes money at the end of each period. Your broker should also be able to explain to you which steps to take in order to get a better return for your money in the coming months.

Hope this helps.

Jim http://jsforex.blogspot.com

Answer 7

Aggressive is a relative term and obviously only your opinion. Your opinion has no basis in law. The situation you find yourself in is your fault, not the brokers. Depending on where your money is, he may be exactly right at this point, but without specifics it is hard to tell.

Answer 8

Brokerages are required to do a risk assessment with you prior to your investing. Did you do one? Did you instruct the broker that you have an aggressive risk appetite? Did you sign a Power of Attorney so that the broker could make investment decisions on your behalf? If you did these things, you are responsible. If you didn't, call the brokerage manager and set up a meeting. Lodge a complaint, and report them to the SEC.