If you find your brokerage account statements difficult to understand, you’re not alone. Even for more experienced investors, a brokerage account statement can be difficult to decipher.
While almost everyone agrees that brokerage account statements are difficult to understand, taking the time to try to understand the information in your brokerage account statement is still critical. Not only is it important for you to have a handle on how much your account is worth, how much income you’re receiving in dividends, how much (if anything) you’re paying for margin debt, and how your individual holdings are doing, but reviewing your brokerage account statements is the best way to monitor your broker and make sure that he/she is not taking advantage of you. Also, if you were to ever bring a claim against your broker or financial advisor for securities fraud related to the trading in your brokerage account, the brokerage firm will almost certainly make an argument that you received your statements and have thereby waived any claim because you obviously knew that this trading was taking place in your account and didn’t complain. So it is better to read your statements so that you can locate inappropriate trading in your account before it is too late.
Here is a basic guide to help you understand your brokerage account statement (The following is based on the standard brokerage account statements used in the industry. If your statement differs substantially, contact your financial advisor for an explanation and ask him/her to describe to you the differences between your statement and those used by most other brokerage firms):
1. ACCOUNT INFORMATION
First, confirm that your account information is correct. Your account information should appear at the very beginning of your account statement. Here you will find basic information, such as the names of the account owners, the time period covered, and the account number. This section also provides you with useful contact information so that you can report to your financial professional any changes in account ownership or other updates.
2. STATEMENT/ACCOUNT SUMMARY
Next you will find a summary of your account. This section shows you how your investments are doing as of the statement date by displaying your unrealized and realized gains and/or losses. (Unrealized gains/losses tell you whether securities or other investments in your account have increased or decreased in value during that time period. Realized gains/losses reflect the gains or losses you realized during that period as a result of a sale of a position.) This section summarizes the total value of your stocks, bonds, mutual funds, other investments, and any cash and often breaks these investments down into categories.
3. PORTFOLIO DETAIL
Next you will find a detailing of each position held in your account. This section identifies individual assets in your account so that you can determine whether the holdings listed are accurate. Also, it shows the value of your investments at the end of the statement period, estimated income and yield, and other information such as bond insurance ratings and stock symbols.
4. INCOME SUMMARY
Following the Portfolio Detail is typically the Income Summary section. This section allows you to see the income and dividends earned by your investments for the statement period and the year-to-date. Income earned and its source (dividends, interest, etc.) are important elements in investment planning and in evaluating investment performance and in insuring that your income paying investments are getting the income that you were promised by your financial advisor when the investment was sold to you.
5. DAILY ACTIVITY
After the income summary, is the daily activity summary. Here you will find detailed information on all account activity during your statement period. It is important to verify that all securities transactions during the statement period are reflected on your statement and that they are accurate. If you have a discretionary account (which means that your broker can execute transactions without first notifying you of each trade first), be sure that the trades reflected on your statement are consistent with the trade confirmations you have received, and fit your investment objectives.
Finally, you will have the basic disclosures. These legal and administrative explanations may include fee information, penalty warnings, and a description of some symbols used. You may also find important facts about your statement here or in a separate “messages” section. Other times, important materials may be found in documents included with your account statement, such as newsletters or brochures. It is important that you read and understand this information to best protect your interests.
Here are some things to be on the look out for when reviewing your statements:
Mistakes– It is important to look out for obvious mistakes or typos in your brokerage account statement as this can sometimes reveal that the statement you have received is fake and was not prepared by your brokerage firm. Although fake statements are not the norm, there have been situations where a financial advisor has prepared fake statements to cover up his/her inappropriate trading activity. This is the most difficult type of investment fraud for the investor to avoid because they weren’t even being provided the correct information from their brokerage firm and generally the only way to avoid it is detect errors in your statement that would lead you to believe that the statement is not real (like spelling errors of the names of your brokerage firm, for example).
Unauthorized trading– When reviewing your statement is important to confirm that all transactions in your account were discussed with you prior to the trade and were authorized. Unless you have a discretionary account, your financial advisor is not permitted to buy or sell securities on behalf without prior authorization, so there should not be any transactions on your account statement that were not first discussed with you. If there are, you should speak to someone with the Compliance Department of your brokerage firm immediately, as this may be evidence that your broker is trading without authorization. If you have a discretionary account (which is fairly uncommon these days) you will still want to confirm that all transactions were in line with your investment objectives and consistent with the trading strategy that you discussed with your broker.
High Commissions– Information regarding the commission your broker received on each trade generally does not appear on an account statement (rather, this information will appear on the separate securities transaction confirmations you are sent after the purchase or sale of a security). However, by reviewing your account statement, you can still determine whether the trading in your account seems high, above normal, or greater than it should be. If the trading in your account is above normal or high, the broker’s trading for that month may have been commission driven. If you believe that the trading in your account was commission driven, you should contact the Compliance Department of your brokerage firm to discuss the commissions in your account.
Margin Debt or Margin Balance– Margin is when you borrow money from your brokerage firm to purchase securities. To purchase securities on margin, you will pay margin interest to your brokerage firm. Generally speaking, a conservative or elderly investor should not be invested on margin, and in many cases the investor does not even realize that they owe a margin balance. As such, it is important to review your brokerage account statement to make sure that you do not owe a margin debt or balance to your brokerage firm that you were not aware of. This information should be located in the account summary. It is also important to understand your margin balance because investors can often misinterpret their account balance when invested on margin. If you are invested on margin, your actual account balance is the value of all securities, bonds, cash, etc., minus the margin debt you owe to the firm. In a declining market, an unsophisticated investor that gives only a cursory glance to their account statement may read the account value total and believe that their account value has remained constant when in reality the account positions have decreased, the margin balance has increased, and the actual account value has decreased. In this scenario, the total account value may remain constant, but the value of the positions, the actual account value, has decreased. Accordingly, always be mindful of the size of your margin debt if you elect to invest on margin, and if the margin balance is larger than you expected, contact your firm’s compliance department to discuss.
If you have concerns about the way your brokerage account has been handled, or if you believe that you have been the victim of securities fraud and would like a professional to review your account statements, The White Law Group can help. To speak to a securities attorney, please call our Chicago Office at 312-238-9650 for a free consultation.
The White Law Group, LLC is a national securities fraud, securities arbitration, investors protection, and securities regulation/compliance law firm with offices in Chicago, Illinois and Boca Raton, Florida.
To learn more about The White Law Group, visit https://www.whitesecuritieslaw.com.