Honesty in Advertising
In many important ways, an
investor is not simply a consumer but a party to a legal contract. Both
the offeror and purchaser of an investment have rights and responsibilities.
This "Bill of Rights" is designed to assist you, the investor,
in making an informed decision before committing your funds. It is not
intended to be exhaustive in its descriptions.
Many individuals first
learn of investment opportunities through advertising--in a newspaper,
or magazine, on radio or television, 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
investment advertising are to call your attention to an offering and encourage
you to obtain additional information.
Full and Accurate
Before you make
any investment, you have the right to seek and obtain information about
the investment. This includes information that accurately conveys all
of the material facts about the investment, including the major factors
likely to affect its performance.
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 visit your public library to find out what may have been
written about the investment in recent business or financial periodicals.
isn't 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's an appropriate investment for you at that time. No investment
is right for everyone.
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 dry hole.
Others may be less obvious.
Many people do not fully understand, for example, that even a 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
doesn't 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, don't invest!
of Obligations and Costs
You have the right
to know, in advance, what obligation 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 arrangements, 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
right 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" shouldn't
be made at all.
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 aren't--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 investors are adequately
informed of the risks involved. Beware of someone who insists that particular
investment is "right" for you although he or she knows nothing
Best Effort Management
Every firm and individual
that accepts investment funds from the public has the ethical and legal
obligation to manage the 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, 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's
Complete and Truthful Accounting
Investing your money
shouldn't mean losing touch with your money. It's 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 accurate.
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 such 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's
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
- 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--dishonestly or
unfairly. Indeed, even in the case of reasonable misunderstandings, there
should be some way to reconcile differences.
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.