NAOI Newsletter - Volume 1, Issue 3

“Honey, Where’s The Brokerage Account?”

Or how not reading your brokerage correspondence may result in your life savings being turned over to the state …………..

As the President of an association that teaches individuals how to invest, and as an individual investor of many years, I consider myself fairly knowledgeable in the ways of the financial world. So you can imagine my surprise when I recently opened a letter from one of my discount brokers telling me that, by law, my account had to be turned over to the government for lack of activity! This same notice could be buried in your stack of unopened financial statements. If it can happen to me, it can happen to you. Read on.

In many respects I believe myself to be a typical individual investor. I have certain brokerage accounts that are invested for the long-term and I don’t trade in them. “Buy and Hold” is a sound investing strategy and I don’t see the need to scrutinize my statements on a monthly basis. Quite honestly, I often file broker correspondence unopened. After all, I can do without the kick-in-the-stomach feeling that I have been getting recently when looking at the bottom line. Little did I know that by not reading mail from my broker, I risked having my account declared “abandoned” and having my money disappear into the equivalent of a black hole!

Account abandonment is a topic few people understand and most believe will never affect them. Every state and the District of Columbia has an abandoned property law. Each is different, but they all set forth conditions under which a financial institution can declare your account “abandoned”, legally take it away from you, and turn it over to your home state to hunt you down.

These laws are intended to deal with items such as checks that haven’t been cashed for years, estates that no one has claimed, or safety deposit boxes that have been forgotten. Periods of inactivity can range from three to five years, depending on the state. Then the holding institution must perform “due diligent” efforts to try to locate the owner before declaring the assets abandoned.

While I have no problem with the intent and function of abandonment laws, I have a major problem with how it was applied by my broker to my account. Here’s what happened:

In the brokerage account in question, I have well over $10,000 sitting in a money market fund. The account was opened three years ago and, due to recent market turmoil, I have had no urge to make trades. I have called representatives of the broker during this period to make various inquires, and they have called me, but in general I have simply left my funds alone. No problem, right? Wrong!

On July 28^th, as I was filing my mail for the month, I noticed - by chance - a broker envelop that looked a little different. So I opened it and read the following: “…if you do not sign and return this letter by July 26, we are forced by the laws of your state to declare your account abandoned and turn it over to them ….”. The letter was written on July 1^st and I read it on July 28^th. According to what I was reading, my funds were gone! The letter from my broker, hereafter referred to as the “doomsday” letter, allowed for no alternative. I had already missed the deadline and they would be breaking the law if they didn’t give my funds to the state.

Needless to say I immediately shifted into panic mode. I checked my account online and found it was still there. I called the broker’s customer service department, but they didn’t have a clue about such matters. I was given a phone number in their “abandoned property” division where I left a voice mail (it was Sunday) pleading for mercy. I then spent a sleepless night filled with nightmares of wandering through a vast government warehouse looking for my money.

Shock eventually turned to anger. What had I done to deserve this? I haven’t moved, so no “undeliverable mail” was involved. I got my statements every month from my broker and my tax form at the end of the year. I get endless streams of marketing material from them. They knew I existed and they sure knew how to reach me.

I read the “doomsday” letter more closely. It said: “…. Although you may receive a regular account statement for your account and you may also receive a Form 1099, your state of residence does not recognize your receipt of these mailings as “activity,” which is defined as a communication originated by you that affects your account or changes information related to your account….”. OK, if that’s the law, so be it, although I found my state’s law on the Web and the application of it to my brokerage account seemed to be a “stretch” to say the least. But what about the “due diligence” required to attempt to verify that I was alive and aware my account? Was a simple, nondescript letter sent to me a couple of weeks before the deadline sufficient due diligence before stripping me of my money?

I called my broker’s customer support line and asked why a simple call before threatening to declare my account abandoned was not standard procedure. After all, they have my phone number and my answering machine works. I was told that they didn’t have sufficient staff to phone people on such matters. Huh? This from a company that spends millions of dollars on TV ads promoting their dedication to their valuable customers! Needless to say, no response from my broker came close to justifying the “doomsday” letter.

To summarize this frightening experience, I took appropriate measures to “rescue” my account and I believe it to now be safe. Apparently the drop-dead date they gave me was somewhat “flexible”. But I didn’t need to be subjected to this nightmare and I don’t want anyone else to go through it either. So I offer the following advice.

First: Investors be aware. Please don’t ignore correspondence from your bank or broker. You may be missing an “abandonment notice” or something else important. Also, check each of the accounts you have with brokerages, banks and anywhere else you have assets, to make sure that they are not on the verge of being turned over to the state. Don’t assume someone will warn you. Make a deposit or write a check on each account at least once a year.

Second: Brokerage Houses, give us a break. This market is tough enough without you taking our money and giving it to the state just because we don’t “trade” or “change” our accounts. And before sending us the “doomsday” letter, how about giving us a call? If we are too much bother we will gladly go elsewhere. My faith in the basic fairness of humankind prevents me from believing that such letters are used to stimulate account trading and thus commissions.

And finally, I checked with other brokers and found the majority to be very reasonable in the area of account inactivity. Undeliverable mail is typically the trigger that sets off a series of “due diligence” activities aimed at finding the owner, not the fact that the owner hasn’t “changed” their account. Almost all that I contacted stated that they would call you before declaring your account abandoned. But if my broker, one of the leaders in the industry, is prepared to give away my account if I don’t respond to piece of mail, don’t assume that yours won’t do the same.

My broker? I tried multiple times to contact their public relations department to discuss this matter and after three weeks have gotten no response, absolutely nothing. Perhaps they don’t have sufficient staff for this purpose either.

Mr. Hevner is the President of the National Association of Online Investors, www.naoi.org , and can be reached at lhevner@naoi.org

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