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Dear Dagen's Guide to Taking on Your Broker

Have a problem with the way your broker executed a trade? Here's what to do.

You put in an order and your broker doesn't fill it. Don't send 50 pepperoni pizzas to the chairman's office for revenge. Try to get even. Here's how.

The securities laws are drafted to require a brokerage firm to make you whole if the firm or a broker is negligent. Actually proving that you've been wronged is the difficult part, but you can take certain steps to do this.

Complain, Complain, Complain

You might encounter some truly egregious problems, such as unauthorized trading or unsuitable transactions. More common are poor or failed trade executions, particularly with the rapid growth of online trading.

Once you realize that an order was executed incorrectly or not executed -- or any other problem has occurred -- notify the firm immediately and ask for the error to be fixed.

Of course, you should first call customer service or a firm representative. Be careful what you say. As the saying goes, anything you say can and will be used against you.

To you, "I'm sorry" might be a simply courtesy. To your brokerage firm's lawyer, it's an angle. Also, be sure to take notes during the conversation.

Simultaneously, put your complaint in writing. To get the firm's immediate attention, fax it and then mail it to the chief compliance officer. If you put the complaint in writing, the firm is obligated to look into it.

Securities attorneys say that you should keep any correspondence brief. The point of any letter is to tell the firm that a specific trade was incorrectly filled. Include any details of that trade in the letter.

Despite the anger that you're probably feeling, you want to avoid recounting every slight you've experienced at the firm, including the time you were kept on hold for 30 minutes listening to

White Christmas

in August.

Cutting Your Losses

Obviously, the sooner you register a complaint, the better. It's important to note that investors are obligated to reduce their damages as much as possible.

"The concept is that if you notice an error and don't report it, you might be responsible for the losses moving forward," says Thomas Grady, an attorney with

Grady & Associates

in Naples, Fla.

Say there is an unauthorized trade in your account, and somehow you own 100 shares of

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that you did not want to buy. "You have the absolute right to have a trade reversed if it was unauthorized," says Mitchell Perlstein of the

Investors' Law Center

in Boca Raton, Fla.

If you call up the firm right away and tell them that you never placed this order, they might immediately fix it. But if you sit on that stock to see what happens, knowing that it shouldn't be in your account, you may bear the burden of any losses.

"Woulda, shoulda, coulda goes nowhere," says Morgan Bentley, a securities attorney in Newark, N.J.

After you have filed a verbal and a written complaint with the broker, you will want to gather any documents, notes or transaction details you'll need to prove your case.

"You are going to have to have an audit trail," says Bentley. "Subsequent to making a complaint, keep a complaint diary." This diary should be a daily record of anything that's happening with regard to your protest. If you recollect additional details a day or two later, write them down. It may be months, or even years, before your claim is addressed in arbitration if it's not quickly resolved. By then, you'll undoubtedly need notes to jar your memory.

How's a Free Ham in Exchange for Your Trouble?

Don't let yourself get bullied or soft-sold into not making a complaint. A firm might try to offer you, say, some discounted trades for your trouble. But if you think you have a valid complaint, don't accept any consolation gifts.

With a human broker, confronting any problem may be even more difficult, given that you are dealing with relationships and emotions virtually absent in the online world.

Don't be surprised if you hear, "If you file a complaint, I might lose my job."

Try not to let the broker or branch manager talk you out of it if you have a valid grievance. And certainly don't accept the pat response of "Oh, it was a computer glitch," if you notice a mistake in your account. If someone tells you not to worry about it, worry



Writing to one of the securities regulators, such as the

Securities and Exchange Commission

or the

National Association of Securities Dealers

, really won't help your case. Don't bother.

The function of these organizations is to regulate the securities industry, not solve individual problems. "They don't act on behalf of the individual to collect money," says Perlstein.

Lying in Wait

Once you've made your complaint, you'll have to wait to see how the firm responds. It should at least acknowledge your complaint within a few days, but it might take months for the broker to review things.

Once you have received an answer from the firm, then you make your decision. It would be simple if the firm stepped up and fixed the mistake, but unfortunately that may not happen.

If the firm rejects your first claim, you may want to consult an attorney rather than writing more letters that may come back to haunt you. At this point, your complaint might turn into an arbitration case.

In the securities industry, complaints are typically heard in arbitration, a private legal proceeding that's legally binding on both parties, rather in a regular court of law.

When you open your brokerage account, you will be asked to agree to arbitration in the event of a dispute. You don't technically have to agree, but a firm may not allow you to open an account without doing so.

Finding Fault

Any error in your account may not be the fault of the broker. For example, what you see as a pricing mistake could be the result of a fast market. "There are five to 10 different variables that can impact an execution," says Michael Anderson, president of the retail unit of




The problem is that you can only see your side of the trade. And to some extent, you are reliant on the broker to determine whether it made a mistake.

A firm could very well respond to your complaint with a simple, "It's not our fault."

However, some firms will own up to their mistakes. For example, in the last calendar quarter of 1998, Ameritrade paid $3.1 million in order execution adjustments during system outages, compensating investors whose orders didn't make it to the Street.

But if you aren't satisfied with your broker's response, do the American thing and get yourself a tough lawyer with big lapels and sharp elbows.

Lastly, if you have ongoing problems with your broker, move your account. "It's the most astonishing thing we see," says Perlstein. "Someone will have problems with a broker and keep using them."

If it'll make you feel better, feel free to flip them the bird on your way out the door.

Dear Dagen aims to provide general fund information. Under no circumstances does the information in this column represent a recommendation to buy or sell funds or other securities.