7. Risk Protection
You’re not alone in wanting to manage investment risk. In addition to the professionals you work with individually, there are federal, state, and private-sector agencies and organizations whose responsibilities help reduce risk by:
- Ensuring you have adequate information with which to make investment decisions
- Providing oversight of the companies and individuals through whom you invest
- Insuring you against specific losses
The Securities and Exchange Commission (SEC) requires all publicly traded companies to register and provide detailed financial information, as well as a description of how the company operates, the management team, and risks posed to investors. The SEC doesn’t evaluate the merits of an investment or make any judgment regarding the potential profit you can make. Instead, the SEC’s role is to ensure that you and all other investors have all the information you need to make a reasonable investment decision.
The SEC also has the authority to investigate and take legal action against the companies issuing registered securities, the investment advisers who recommend those securities to you, and the investment companies, such as mutual funds, that sell them. In addition, the SEC oversees credit rating agencies that evaluate bond issuers. You can check to see whether the rating company whose assessments you are given is one of the ten identified as a Nationally Recognized Statistical Rating Organization (NRSRO)—currently A.M. Best Company, Dominion Bond Rating Service (also known as DBRS), Egan-Jones Rating Company, Fitch, Japan Credit Rating Agency, LACE Financial Corporation, Moody’s Investors Service, Rating and Investment Information, Realpoint LLC, and Standard & Poor’s Ratings Services.
You can file a complaint with the SEC or report potential violations of the federal securities laws using one of several methods: visit the online SEC Center for Complaints and Enforcement Tips at www.sec.gov/complaint.shtml; call the toll-free investor information service at 800-SEC-0330 (800-732-0330); or write to the SEC Complaint Center, 100 F Street, NE, Washington, DC, 20549-0213. You can also forward electronic copies of investment-related spam (junk e-mail) or message board postings by using the “Add Attachments” feature at the bottom of the online complaint form.
State securities regulators, whose nationwide organization is called the North American Securities Administrators Association (NASAA), register the securities that are sold only within their borders. They also license the stockbrokers, brokerage firms, and small investment adviser firms (under $25 million in managed assets) that operate in their states. These regulators play a major role in protecting investors against all types of fraud, which is one of the major risks that investors face if they aren’t diligent about checking the credentials of investment professionals and the registration of specific securities.
You can contact NASAA online at www.nasaa.org, by phone at 202-737-0900, by fax at 202-783-3571, or by writing to NASAA, 750 First Street, NE, Suite 1140, Washington, DC, 20002. The Web site provides a link to securities regulators in each state that provides the relevant address, phone number, and email address.
FINRA is the largest, non-governmental self-regulatory organization (SRO) for the securities industry and operates under the jurisdiction of the SEC. Among its responsibilities are governing the activities of brokerage firms, also known as broker-dealers, licensing registered representatives, also called stockbrokers, and regulating trading in corporate bonds, equities, and certain futures and options.
FINRA regularly reviews the communications you receive from its members to help ensure that the information you and other investors receive is not misleading or exaggerated, and that it clarifies the risks as well as the potential rewards of investing.
FINRA conducts regular reviews of firms and representatives under its supervision. It has the authority to investigate and, if warranted, discipline members, and it maintains a BrokerCheck database where you can review the background and qualifications of firms and brokers. Using that information lets you avoid the risk of working with a person or firm that FINRA has disciplined for rules violations. You can find this information by visiting FINRA’s Web site at www.finra.org/brokercheck. You can also find information on dispute resolution, mediation, and arbitration on the Web site as well as contact information.
You can reach the FINRA Call Center at 301-590-6500 or at one of FINRA’s district offices located around the country. The telephone number of the Office of Dispute Resolution is 212-858-4400.
The Securities Investor Protection Corporation (SIPC) is a federal nonprofit corporation that insures you against losses of up to $500,000 if you have an account with one of its member brokerage firms that goes out of business because it has failed financially. The coverage includes up to $100,000 in cash or cash equivalent losses. Since all firms that register with SEC are required to be members of SIPC, one way to check the reliability of any broker or brokerage firm that solicits your business is to ask for confirmation of SIPC membership.
SIPC, however, does not protect you against investment risk, including the risk that you could lose money. It protects you only if the firm you are dealing with can no longer operate and its assets aren’t acquired by a healthy firm.
You can find more information about SIPC at the Web site, www.sipc.org. You can also contact them by phone at 202-371-8300, by fax at 202-371-6728, by email at asksipc@sipc.org, or by writing to: SIPC, 805 15th Street, NW, Suite 800, Washington, DC, 20005-2215.
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