Some of the saddest stories I hear from investors are tales of modest losses that represent a huge chunk of the person's life savings. Sometimes a broker put them into totally unsuitable, high-risk investments. Sometimes a broker made unauthorized trades or a series of trades that look like they were intended solely to generate commissions. Frequently serious misrepresentation occurred.
But no matter how good their claims might be, if they lost less than $30,000, investors have a tough time finding a lawyer willing to take the case.
"Brokerage firms know this and when you have a dispute and the customer's losses are less than $30,000, even if the brokerage firm has a very poor defense, they will refuse to make the client whole, knowing it will be difficult for the client to find a lawyer," Clearwater lawyer Kal Nekvasil said.
Most lawyers who bring these cases work on contingency, which means they get paid a percentage of the winnings if they are successful and nothing if they lose. If the potential recovery is small, the case is simply not worth a lawyer's time.
"You may have to do almost as much work on a small case as you do on a big one," said Robert Talbot, a law professor who directs the University of San Francisco Investor Justice Project, one of several law school clinics around the country attempting to address the problem.
His project and others in New York and Pennsylvania specialize in cases against brokerage firms that lawyers won't take. Some accept out-of-state clients, although most have income restrictions and limits on the size of the claim they will accept. A list can be found on the Securities and Exchange Commission Web site (www.sec.gov/answers/arbclin.htm)
The clinics are a great idea that Florida law schools should adopt. With Florida's large population of older investors, there would be plenty of work for the clinics to handle. Talbot said San Francisco students have been eager to participate.
"I have five times as many people wanting to be in it as I have room for," he said.
Theoretically, investors can represent themselves in arbitration proceedings, the method for resolving most disputes between investors and brokerages. However, most investors are not equipped to face off against a lawyer hired by their brokerage.
"They're often elderly or inexperienced and cannot handle the technical requirement of the law, fact gathering or presentation," Talbot said.
At San Francisco, advanced finance students help law students analyze the cases and some lawyers and securities experts donate their time as consultants. Talbot supervises the students' work. The investors have to pay the arbitration filing fee, typically $400 to $700, but get to keep whatever they recover.
The San Francisco program is just 11/2 years old and has yet to take a case all the way through arbitration to an award. Talbot said many cases have been settled.
Investors with potential cases can write the University of San Francisco Investor Justice Project, 2130 Fulton St., San Francisco, CA 94117-1080.
Q. I presume inflation is inevitable with improving economic performance and I expect that recent stock gains will eventually stabilize or retreat. I see advice to shift funds to Treasury bonds from stocks, but I understand that bond yields will increase with growing inflation and that bond prices will decline. Would an inflation-protected bond fund have advantages during a period of increasing inflation as an alternative to stock funds?
In a time of rising inflation, a bond fund that invests in inflation-protected securities should perform better than other bond funds, but still would be hurt by rising interest rates. The Treasury's inflation-indexed securities pay a fixed rate for the life of the bond with the principal adjusted for inflation.
Consider lightening up on stocks rather than abandoning them entirely in case your expectations about the future turn out to be wrong.
Q. I intend to establish a large charitable gift annuity with a well-endowed college. I understand that the money will belong to the institution upon my death. What do I need to know to ensure that the lifetime payments are secured?
Charitable annuities are secured in one of two ways - by the sponsoring charity's own reserves or by an insurance company from which the charity purchases an annuity on your behalf. The most important precaution is to stick with a charity you know and trust that it has a history of financial stability.
- Helen Huntley writes about investing and markets for the Times. If you have a question about investments or personal finance, send it to On Money. We'll try to answer those we think are of greatest reader interest. All questions must be submitted in writing, but readers' names will not be published. Send questions to huntley@sptimes.com or Helen Huntley, Times, P.O. Box 1121, St. Petersburg, FL 33731.
