Am I overreacting?

In My Humble Opinion
1

(Yes, I am aware that 99.9999% of this time the answer to this question is “Yes”)

The story in brief:

I have a small investment account with a broker for the past 20 years.
A few years ago I rolled over an IRA into a Roth and since I already had Roth IRAs at Schwab and Vanguard, I started the acccount at the brokerage. I have a couple of funds in there that I’ve had since about 1995.

I was reviewing my accounts recently and noticed I had a couple of thousand dollars in cash because one of the funds apparently does not have a DRIP, so I called my broker and asked him to put it in a low fee index ETF. I asked him to get back to me with what he thought might be a good choice.

He called a couple of days later with a fund he strongly recommended. However, it was an actively managed fund. I told him I did NOT want him to buy it and stated again that I wanted an index fund, preferably an index 500 fund. I told him that if he could buy it, something like Fidelity or Vanguard would be fine but I did not want a managed fund, and I wanted him to call me before he bought anything. He said he would call in a day or so with his suggestion.

I didn’t hear for a week, then opened my mail to find confirmation of a trade dated the day he had talked to me on the telephone. Apparently, I was now in possession of several shares of a fund I did not know (not sure if it was the one he recommended previously or a different one). This was also a managed fund with a management fee.

As you have probably guessed, I was furious. I waited a few hours to calm down, then called to ask what he thought he was doing. He stated that he had had trouble reaching me and thought that this would be a good investment.

I basically told him in no uncertain terms that I wanted out of this fund and I wanted ALL of my money back including any commission that he took. I then gave him the name of a fund that he was allowed to put my money in and told him again not to make any trades without my express permission.

Even writing this, I am still upset. I feel that what he did was completely unethical. How can you buy something that is against your client’s clearly expressed wishes? I want to transfer my money to another broker ASAP and report him to the SEC or whoever takes care of things like this.

My mother, who is generally pretty bright but can be soft-hearted, thinks that I should have held onto the fund and seen how it performed. She thinks that this was a misunderstanding and the broker meant well. However, she said if I am unhappy, I should definitely move my money.

Granted, my main objective is to make sure that my money is invested the way I want, and the correction has been made. So, given that everything is OK in the end, am I being unreasonable to still be mad?

2

Holy shit.

My wife manages most of our finances (being that she’s a professional and whatnot), but I do pay attention enough to be satisfied that we are investing wisely and being treated fairly, etc.

Your story raises several alarms for me. I am not an expert, by any means (the wife is, as you’ll recall), but from what little I know, this broker is on a quick path to losing his license for acting this way.

In fact, the company my wife works for is very highly regarded in particular for its ethics (and is probably the only company you’ve heard of that has not been involved in some of the major scandals in the past decade). However, that company did have some trouble a few years back with some of the brokers it contracts with who got in serious trouble for just the sort of thing you describe (pushing fee-based transactions and the like on their clients). The company got a slap on the wrist, more or less, but the brokers got cut loose, some got sued; it was and still is a huge deal there - a lot of procedures were put in place to make a recurrence of that sort of problem exceedingly unlikely.

I will leave it to other, more knowledgeable 'Dopers to advise on remedies, etc, but IMO you clearly have reason to be upset, and are also to be commended on attempting to wait until you are more clear-headed before responding.

I’ll pass this along to my wife, and see if she has any recommendations.

For clarity’s sake, however, you say that “everything is OK in the end” - did the broker actually follow through with your latest directives, in writing?

3

Doing exactly what you didn’t want is not what a professional does. It sounds like this guy is either utterly desperate for fees or considers your account too small time to really focus on your instructions or based on a 20 year relationship he feels you should just trust him and takes a casual view toward your instructions. I can’t imagine he got paid anything substantial re commissions for just buying a few thousand dollars worth of shares for you so I’m tending to the notion that he’s just taking the relationship for granted.

4

If you have your wishes in writing (like in an email), you have everything you need to nail him to the wall. If you conduct all your business by phone, get it in writing from now on. Either way, call the brokerage and ask for a manager and make sure they’re aware of what happened. If you’re a small fry, the guy might keep his job/license. Might. It may have been a legitimate mistake, so try not to take it personally. If he did it on purpose, that’s a different story (but I doubt you could prove that).

  • Of course* you’re justified in being angry. It was either intentional misconduct or a negligent error. This is why E&O policies exist. It’s good you caught it when you did.
5

Another vote for totally justified anger.

6

The question of whether you’re over-reacting partially depends on whether you have a broker or an investment manager (to use layman’s terms). For either type of person, buying something when you’ve explicitly instructed otherwise is not a good thing, but how bad depends on the role.

A broker’s only job is to buy what you tell them to buy. Brokers are merely agents on your behalf with no real will of their own. For a broker, this situation should be an absolute deal-breaker and I’d leave regardless of how he handles it.

On the other hand, an investment manager take a much broader role of selecting what to purchase and then purchasing it on your behalf. Making decisions on his own if he doesn’t hear back from you is what investment managers do. To a certain extent, second-guessing their clients is also what they do - if you were making all of your own investing decisions, then all you would need is a broker and not an investment manager.

Still, this person has given you a lot of resistance about this purchase. Maybe there’s a commission angle on it. Maybe he really thinks it’s the best choice for you, but if that’s the case, it sounds like he’s not doing a good job of explaining why. If you’ve had good experiences with this person in the past, I’d be willing to cut them a little slack and see if things can get back on track. If you’ve been looking for an excuse to find someone else, then this is it.

7

Yup, this is in the 0.0001%. What he did is completely unethical.

But save your anger for things you can’t change. This one is easy to change - transfer to another broker immediately. Even if buying the fund was a mistake (which I don’t believe), he started out recommending a fund that went against your request for a “low fee index ETF.” He isn’t listening to you; find someone who will. There are plenty of good ones out there.

8

BTW, you mention your mom is a softie who was fine with what he did. Watch her $$ like a HAWK! And no, you weren’t overreacting.

9

You have retirement accounts at Vanguard and Schwab. If I were you I would be starting an investment account at one of those brokerages. Since you only want to be in index funds anyway, you could easily manage your own investments online. Up to you whether you want to pull all of your money from the brokerage and put it there, but definitely any future money, or any money in cash that you want to invest should be under your own control.

And if I were you, I wouldn’t be taking any financial advice whatsoever from your mother.

10

Thanks.
The only reason I’m willing to cut the guy as much slack as I do is that

  1. He’s been managing this account for 20 years and I’ve always dealt with him over the telephone. He is not an investment manager-he has never bought anything before without my OK, but he usually makes suggestions, I research them and then say yes or no. Basically, I figure I get investment advice from a professional and he gets a small commission. I got the feeling that after our first conversation he thought that I was asking for advice on a good fund to purchase. I completely believe that he thought he was acting in my best interest when he bought the fund after he could not reach me. Still, no means no.

2)I can’t report him to the higher-ups as he is the highest-up in his office. It’s his name on the door and the only reason he deals with me personally is that when I started out somebody referred me to him personally. He has an excellent reputation. However, I’ll have to be more careful in the future if I stay with him.

  1. The only people I am less likely to take investment advice from than my mother are my siblings.:wink:
11

Definitely report this incident to your state securities regulator. You can look up the contact info here: Contact Your Regulator - NASAA