Securities-Backed Lending and Margin Accounts
In 2010 and thereafter, the securities-backed lending (“SBL”) business became a huge profit center at many brokerage firms. According to the Financial Industry Regulatory Authority (FINRA), “between 2012 and 2014, one large firm that offered these programs reported a 70 percent increase in securities-based lending business, while another firm reported over a 50 percent increase.” In the bull market we have experienced for over ten years in the United States, stockbrokers have increasingly recommended that their clients open SBL accounts seeing little to no downside because the market has steadily moved higher without large swings in the opposite direction.
One reason for the exponential growth in SBL account recommendations is undoubtedly the increased commissions and/or management fees from the assets maintained in those accounts, assets that might have otherwise been liquidated for the clients use outside the brokerage firm. Another reason for the growth in popularity was the fee paid to the financial advisers for getting their clients to not only take out the loans but the additional fees paid that were based on the amount of credit extended to his/her clients.
Well, it appears that many stateside financial advisers along with their clients have just had their first experience with how dangerous the leverage in these SBL accounts can be to an investment portfolio. The recent COVID 19 market volatility has led to “margin maintenance” calls in many clients’ SBL accounts and liquidations of clients’ assets without notice, leaving them with substantial losses.
Clients and stockbrokers alike have complained to us that they received no opportunity to meet the “maintenance calls,” but if they had, their clients could have deposited more assets and avoided liquidations and benefitted from the rebound the next day. The typical response from the brokerages margin department was probably “we are very sorry, but when you opened your [SBL] account, you signed a contract that gave us the right to do exactly what we did, protect ourselves.”
The fact that they had that contractual right doesn’t mean the brokerage firm and/or its financial adviser didn’t engage in any misconduct and can’t be held responsible for your losses, which is why you need an experienced and battle tested FINRA securities arbitration attorney to make that determination.Representing Clients In Florida and Nationwide In FINRA Arbitrations
What many investors did not understand is that when they opened a SBL account, they effectively opened a risky margin loan account even though the purpose of the loan was for something other than purchasing securities. The use of leverage is a speculative investment strategy in any kind of account. We seriously doubt that any financial adviser ever described the account as high risk when he/she recommended that you open a SBL account. Further, over-concentration of investor’s leveraged portfolios in any sector like oil and gas, hospitality, gaming, etc. proved to be deadly this (2020) year in SBL accounts. Attorney Pearce and his team have worked on many SBL account cases and investigations, so you may want to click on the links below for more information or just call us and find out if you have a case:
- Investors With “Blown-Out” Securities-Backed Credit Line and Margin Accounts: How Do You Recover Your Investment Losses?
- Securities-Backed Lines of Credit Can Be More Dangerous Than Margin Accounts!
- UBS Financial Services, Inc. Sued Due For Florida And Ohio Financial Advisor Kenneth Wise’s Alleged Misconduct Involving A Credit-Line Investment Strategy
- J.P. Morgan Sued for Edward Turley and Steven Foote’s Alleged Margin Account Misconduct
- Our Securities-Backed Lending Account Blog Archives
The Law Offices of Robert Wayne Pearce, P.A. understands what is at stake in securities and commodities investments, particularly in leveraged brokerage accounts and risks associated with them. Attorney Pearce provides a complete review of your case and fully explains your legal options. He constantly strives to secure the most favorable possible result. Mr. Pearce and his team is careful to ensure that you have all of the information necessary to make a sound decision before any action is taken in your case.
For dedicated representation by a law firm with substantial experience in all kinds of securities, commodities, and investment disputes, including oil and gas investment disputes, contact the firm by telephone at 561-338-0037 or toll free at 800-732-2889 or via e-mail. We may also be able to arrange a meeting with you at offices located in Boca Raton, Fort Lauderdale, Miami and West Palm Beach, Florida and elsewhere.