Investing is a very unique method
of earning. Other methods of making money involve an individual providing
some form of service or product to another in exchange for a fee. When
investing you trust someone with your money to make you more money. An
interesting relationship, and one where you should understand and protect
your rights. While the information below may not cover every possible
contingency, it will hopefully provide a useful guideline for protecting
We will cover your rights as
- Honesty in advertising
- Full and accurate information
- Disclosure of risks
- Explanation of obligations and
- Time to consider
- Responsible advice
- Best effort management
- Complete and truthful
- Access to your funds
- Recourse, if necessary
Honesty in advertising
Many individuals first learn of
investment opportunities through advertising in a newspaper or magazine,
on radio, television, the Internet, or by mail. Phone solicitations are
also regarded as a form of advertising. In practically every area of
investment activity, false or misleading advertising is against the law
and subject to civil, criminal or regulatory penalties.
Bear in mind that advertising is
able to convey only limited information, and the most attractive features
are likely to be highlighted. Accordingly, it is never wise to invest
solely on the basis of an advertisement. The only bona fide purposes of
advertising are to call your attention to an offering and encourage you to
obtain additional information.
Full and accurate
Before you make an investment,
you have the right to seek and obtain information about the investment.
This includes information that accurately conveys all the material facts
about the investment, including the major factors likely to affect its
You also have the right to
request information about the firm or the individuals with whom you would
be doing business and whether they have a "track record." If so,
you have the right to know what it has been and whether it is real or
"hypothetical." If they have been in trouble with regulatory
authorities, you have the right to know this. If a rate of return is
advertised, you have the right to know how it is calculated and any
assumptions it is based on. You also have the right to ask what financial
interest the seller of the investment has in the sale.
Ask for all available literature
about the investment. If there is a prospectus, obtain it and read it.
This is where the bad as well as the good about the investment has to be
discussed. If an investment involves a company whose stock is publicly
traded, get a copy of its latest annual report. It can also be worthwhile
to check out the Internet or visit your public library to find out what
may have been written about the investment in recent business or financial
Obtaining information is not
likely to tell you whether or not a given investment will be profitable,
but what you are able to find out--or unable to find out--could help you
decide if it is an appropriate investment for you at that time. No
investment is right for everyone.
Disclosure of risks
Every investment involves some
risk. You have the right to find out what these risks are prior to making
an Investment. Some, of course, are obvious: Shares of stock may decline
in price. A business venture may fail. An oil well may turn out to be a
Others may be less obvious. Many
people do not fully understand that even an U.S. Treasury Bond may
fluctuate in market value prior to maturity. Or that with some investments
it is possible to lose more than the amount initially invested. The point
is that different investments involve different kinds of risk and these
risks can differ in degree. A general rule of thumb is that the greater
the potential reward, the greater the potential risk.
In some areas of investment,
there is a legal obligation to disclose the risks in writing. If the
investment does not require a prospectus or written risk disclosure
statement, you might nonetheless want to ask for a written explanation of
the risks. The bottom line: Unless your understanding of the ways you can
lose money is equal to your understanding of the ways you can make money,
Explanation of obligations
You have the right to know, in
advance, what obligations and costs are involved in a given investment.
For instance, does the investment involve a requirement that you must take
some specific action by a particular time? Or is there a possibility that
at some future time or under certain circumstances you may be obligated to
come up with additional money?
Similarly, you have the right to
a full disclosure of the costs that will be or may be incurred. In
addition to commissions, sales charges or "loads" when you buy
and/or sell, this includes any other transaction expenses, maintenance or
service charges, profit sharing arrangement, redemption fees or penalties
and the like.
Time to consider
You earned the money and you have
the right to decide for yourself how you want to invest it. That includes
sufficient time to make an informed and well-considered decision.
High-pressure sales tactics violate the spirit of the law, and most
investment professionals will not push you into making uninformed
decisions. Thus, any such efforts should be grounds for suspicion. An
investment that "absolutely has to be made right now" probably
should not be made at all.
Investors enjoy a wide range of different investments to
choose from. Taking into consideration your financial situation, needs and
investment objectives, some are likely to be suitable for you and others
are not, perhaps because of risks involved and perhaps for other reasons.
If you rely on an investment professional for advice, you have the right
to responsible advice.
In the securities industry, for example,
"suitability" rules require that investment advice be
appropriate for the particular customer. In the commodity futures industry
a "know your customer" rule requires that firms and brokers
obtain sufficient information to assure that investors are adequately
informed of the risks involved. Beware of someone who insists that a
particular investment is "right" for you although he or she
knows nothing about you.
Best effort management
Every firm and individual that accepts investment funds
from the public has the ethical and legal obligation to manage money
responsibly. As an investor, you have the right to expect nothing less.
Unfortunately, in any area of investment, there are
those few less-than-ethical persons who may lose sight of their
obligations, and of your rights: By making investments you have not
authorized, by making an excessive number of investments for the purpose
of creating additional commission income for themselves or, at the
extreme, by appropriating your funds for their personal use. If there is
even a hint of such activities, insist on an immediate and full
explanation. Unless you are completely satisfied with the answer, ask the
appropriate regulatory or legal authorities to look into it. It is your
Complete and truthful accounting
Investing your money should not mean losing touch with
your money. It is your right to know where your money is and the current
status and value of your account. If there have been profits or losses,
you have the right to know the amount and how and when they were realized
or incurred. This right includes knowing the amount and nature of any and
all charges against your account.
Most firms prepare and mail periodic account statements,
generally monthly. And you can usually obtain interim information on
request. Whatever the method of accounting, you have both the right to
obtain this information and the right to expect that it be timely and
Access to your funds
Some investments include restrictions as to whether,
when or how you can have access to your funds. You have the right to be
clearly informed of any restrictions in advance of making the investment.
Similarly, if the investment may be illiquid--difficult to quickly convert
to cash--you have the right to know this beforehand. In the absence of
restrictions or limitations, it is your money and you should be able to
have access to it within a reasonable period of time.
You should also have access to the person or firm that
has your funds. Investment scam artists are well versed in ways of finding
you but, particularly once they have your money in hand, they can make it
difficult or impossible for you to find them.
Recourse, if necessary
Your rights as an investor include the right to seek an
appropriate remedy if you believe someone has dealt with you--or handled
your investment--unfairly or dishonestly. Indeed, even in the case of
reasonable misunderstandings, there should be some way to reconcile
It is wise to determine before you invest what avenues
of recourse are available to you if they should be needed. One means of
exercising your right of recourse may be to file suit in a court of law.
Or you may be able to initiate arbitration, mediation, or reparation
proceedings through an exchange or a regulatory organization.
Additional information about filing complaints can be
obtained through various regulatory organizations.
These Investors' Rights has been
prepared with input from the following, these organizations can provide
additional information on protecting your investments:
National Futures Association
American Association of
Commodity Futures Trading
Council of Better Business
National Consumers League
North American Securities
United States Postal Service
Chief Postal Inspector
If you suspect mail fraud or
misrepresentation, contact the Chief Postal Inspector or your local
Postmaster or Postal Inspector. For any other mail service problems
contact your local Postmaster, or contact:
United States Postal Service
Washington, DC 20260-2200