Finds evidence of overcharges for transactions, postage

By Bruce Kelly September 7, 2011 3:42 pm ET

Living up to its warnings of this year, the Financial Industry Regulatory Authority Inc. said today that it has walloped several firms for overcharging for postage and handling.

In May, Finra chief executive Richard Ketchum warned an audience of brokerage executives at the self-regulator’s annual meeting in Washington that it was making inquiries into firms’ overcharging clients for such services. This morning, Finra said it fined five firms a total of $910,000 for overcharging clients on handling transactions.

Mr. Ketchum earlier said: “We are taking a close look at excess charges for routine services, which some firms appear to be treating as an additional de facto commission. You can expect to see some enforcement activity in this area with respect to particularly egregious examples.”

Finra today said in a statement that the five firms were “understating the amount of total commissions charged to customers in trade confirmations and on fee schedules by mischaracterizing a portion of the commission charges as fees for handling services.”

Firms allegedly were using the practice to gouge clients, Finra said. “With respect to each of these firms, the handling fees were designed to serve as a source of additional transaction-based remuneration for the firm and thus were far in excess of the cost of the handling-related service the firms provided.”

The five firms and respective fines were: Pointe Capital Inc. of Boca Raton, Fla., fined $300,000; John Thomas Financial of New York, $275,000; First Midwest Securities Inc. of Bloomington Ill., $150,000; A&F Financial Securities Inc. of Syosset, N.Y., $125,000; and Salomon Whitney LLC of Babylon Village, N.Y., $60,000.

To continue reading, go to FINRA fines five firms almost $1M over fees

NASAA recently released its list of the top scams con artists use to trap unwary, or merely desperate, investors during these volatile economic times

Advisors and investors beware: Even though Bernie Madoff is gone, economic uncertainty and volatile stock markets still breed con artists itching to trap the unwary or merely desperate.

During turbulent economic times like we’re currently facing, “con artists follow the news and seek ways to exploit the headlines to their advantage while leaving investors holding an empty bag,” says David Massey, president of the North American Securities Administrators Association (NASAA) and North Carolina deputy securities administrator.

To help advisors alert their clients of the latest scams, NASAA recently released its listing of the Top 10 financial products and practices: five of each.

“Promoters often offer investors an opportunity to get in on the ‘ground floor’ of new technology or ideas to help others and make a great economic return,” says Massey. “Unsuspecting investors can be lured into these schemes, especially if they sound familiar. These offerings require careful research and a strong reminder that if it sounds too good to be true, it probably is not true, nor will it be profitable to anyone but the promoter.”

Read on for more details about these scams du jour.  Top 10 Financial Scams: Products and Practices

WASHINGTON –– Hiding income in offshore accounts, identity theft, return preparer fraud, and filing false or misleading tax forms top the annual list of “dirty dozen” tax scams in 2011, the Internal Revenue Service announced today.

“The Dirty Dozen represents the worst of the worst tax scams,” IRS Commissioner Doug Shulman said. “Don’t fall prey to these tax scams. They may look tempting, but these fraudulent deals end up hurting people who participate in them.”

The IRS works with the Justice Department to pursue and shut down perpetrators of these and other illegal scams. Promoters frequently end up facing heavy fines and imprisonment. Meanwhile, taxpayers who wittingly or unwittingly get involved with these schemes must repay all taxes due plus interest and penalties.

Following is the Dirty Dozen for 2011:

To continue reading go to Don’t Fall Prey to the 2011 Dirty Dozen Tax Scams

1. Know your advisor.

Investment Advisors are registered with government organizations. You can research registrations and review any past complaints with the SEC (www.sec.gov), or with the respective state regulatory agency. If a firm is a broker-dealer, you can research it with the Financial Industry Regulatory Authority (www.finra.org). You should also be aware of what you have authorized your Advisor to do. For example, if you have granted discretion over your investments, you have given permission to buy and sell investments to meet your stated objectives, without your approval for each individual trade. The authority you have granted should be stated in our Client Services Agreement. If you can’t locate it, ask for a copy from your Advisor.

2. Know your investments.

Consider stocks, bonds, ETFs, and mutual funds that are publicly traded and listed on major exchanges like the New York Stock Exchange. They are valued independently at least daily, if not minute by minute, when the exchange is open. You can check their reported returns against your own portfolio. If you can’t look up the prices and performance of what you own in the newspaper or on the Internet – that’s a red flag – ask more questions. If you choose to invest in complex securities like private placements, then you have additional homework to do. These private placements include real estate limited partnerships and non-traded REITS. Be sure to do your homework and be satisfied with the competency and integrity of the sponsor.

3. Use an independent custodian.

By utilizing an independent custodian, there is objective, unbiased pricing of underlying securities. Investment performance can look better if the prices reported to clients are manipulated, showing winning performance year after year despite the ups and downs of the market. Your custodian should receive security prices through well-known, third-party pricing vendors or directly from issuers. In many cases, prices are provided on a real-time basis for most securities. Your custodian should have no input on asset pricing or valuation. You should get your monthly statements directly from your custodian and not just your Advisor.

4. Check on protection.

Make sure your custodian is a member of the Securities Investor Protection Corporation (SIPC). The securities in your account are protected up to $500,000, of which $100,000 may be applied to cash. For additional information, please visit www.sipc.org. Many custodians also provide additional coverage through private insurers that will enhance your protection above the limits of SIPC. SIPC protection and supplemental coverage protect against losses from brokerage failure, not market value decline.

One final thought: If it sounds too good to be true, it probably is. Beware of consistent annual returns that are out of line with established benchmarks.

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“Investor Education for Main Street America”