About Investment Forensics: The Basics

Have you retained investment losses due to broker misconduct? The rules and regulations of stock trading are so complex that even your financial advisor could be unaware of their own misconduct.

It is common knowledge in the stock trading industries that training and education of financial advisors only scratch the surface of the laws and regulations that pertain to trading in securities, bonds, ETF’s, future contracts, derivatives, and mutual funds. Each different area of the stock market comes with specific regulations and laws that limit the activity of traders in the market. There is a real possibility that your financial advisor is trading in unfamiliar territory. If they are, this possesses grave risks to your financial health as well as your legal status as an investor.

Investment forensics is the study and analysis of investment activity over a given period of time. Think of it as an investigation into the actions of your financial advisor, to assess if there was any illegal activity or flagrant investing that put your money at risk. If properly undertaken, investment forensics can reveal:

  • Your portfolio’s standard deviation percentages vs rate of return
  • The relative risk in your investments
  • How safe your money is if there is a downturn in the market
  • Where the hidden fees are
  • Whether or not your financial advisor complied with all investment rules and regulations

Investment forensics is an important asset because the complexity of investment regulation is so deep that it is nearly impossible for you to assess the level of risk in your own portfolio. Do you know what a Class C stock entails? Are you aware of the risks involved in mortgage-backed bonds? Does it seem risky to invest in derivatives? These are all questions that an investment forensics team will ask about your portfolio.

Even assuming that your financial advisor is following the investment regulations that control the New York Stock Exchange (NYSE), there is still a real possibility that they are mishandling your portfolio. It is the responsibility of an investment advisor to monitor their compliance policies over the short and long-term. However, it is an unfortunate side of the investment industry that these tests are either not done, or not done with complete comprehension of the risks. It is likely that your financial advisor is only trying to bring the most profit to your portfolio – but in doing so have they put all your investments at risk? Only an in-depth forensics analysis of your portfolio from an industry expert will give you the answers to these important questions.

Common Methods to Assess a Claim

Let us presume you have a claim about financial mismanagement of your investments. A case evaluation can include a number of different tests, including:

Portfolio Management Assessment

  • A close look at the comparative performance of accounts that are managed in a similar fashion to detect whether any favoritism, misallocation, or other breaches of conduct are present.
  • Check the performance of all stocks in initial public offerings (IPOs) over the short and long term and assess reasons for why some were far more successful than others.
  • Find which client had the most profitable trades over the past 12 months and determine why.
  • Make a full review of personal trading activity the broker has taken on. Also, review the files of affiliated brokers to see if there is anything unfamiliar or not accounted for.

Brokerage Executions

  • Check the average commission rates paid to brokers to see if there is any conflict of interest.
  • Check the total amount that commissions have been paid to brokers over a period of 6 to 12 months. This will reveal any unspoken relationships between your advisor and their broker.
  • Pay close attention to accounts that have had a number of errors. Consider how these errors have been corrected, and identify ways to improve.

 Evaluation of Portfolio Turnover Rate 

  • Confirm that the pricing of securities is fair on a daily basis and that selling prices remain consistent. If they do not, then there are grounds for a claim.
  • Make sure that fund shareholder turnover is an accurate reflection of the fund’s pricing policy. High turnover is cause for alarm.

General Safety of Assets

  • Analysis of reconciliation books for the client’s If there are a number of items that appear from one reconciliation list to the next, then there is real cause for concern.

Contact CSAG for a Free Consultation

Cold Spring Advisory Group is made of investment experts with over 25 years of experience in stock trading and branch management. This extensive knowledge provides the company with the acumen and tools required to assess the particular investment forensics of your situation and help you assess the extent of your losses.

It is of utmost importance that you contact Cold Spring Advisory Group if you have any concerns about how your investment portfolio is being managed. The experts at CSAG will work with you to evaluate losses caused by broker misconduct. The consultation is free of charge and will bring you peace of mind that comes with knowing how your money is being spent.


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January 19, 2017 About Investment Forensics: The Basics