Your brokerage firm must send you account statements quarterly, if not more frequently. These statements are often difficult to understand. Still, it is important that you review the statements carefully to understand what is happening in your account. Here are a few tips on how to analyze the statements:
Verify your basic account information.
The first section of your statement includes basic information such as your address and the name on your account. Note one obvious item here: if you are planning a move, be sure to notify your broker so your broker knows where to find you.
Here is a less obvious pointer: analyze how your account is named (or titled). Is it correct? Should the account be in the name of a trust? Is your account titled jointly when it shouldn’t be? Is the account titled in a manner that is consistent with your asset protection and estate planning objectives?
Confirm that your income summary is consistent with your tax objectives.
Your income summary will include income received from interest and dividends. Ask yourself whether the income streams are taxable or tax exempt, and whether that tax status is consistent with your investment strategy. If the answer is no, or you don’t know, speak to your financial professional.
Look for changes in portfolio detail.
The portfolio detail will identify your individual assets. If they are bonds, has the bond rating changed? Do you recognize all of the holdings? Take a look at the unrealized gains or losses and consider how they impact your investment and tax planning. If you have substantial losses due to unsuitability or churning, for example, consider contacting an experienced securities attorney. Securities claims are subject to strict statutes of limitation and eligibility deadlines. Note the quantity of cash in your account. Is it earning any interest?
Closely scrutinize daily activity.
This section is extremely important. Do you recognize all of the trades that were made in your account? Were they made with your authorization? If not, and you are not in a discretionary account, then you have an unauthorized trade and you should immediately contact your broker, and possibility a securities attorney if the broker’s explanation is unsatisfactory.
Are you seeing a great deal of buying and selling in your account? This could be indicative of churning – where the broker makes numerous trades in order to increase commissions.
Ensure that you received a separate trade confirmation for each trade and that the daily activity and trade confirmations are consistent.
Consider the commission charges listed on the trade confirmations. Are they what you agreed to? Are the trade confirmations in accord with the trades you requested? Errors can easily occur involving the quantity purchased. Also, the purchase price should be what you expected.
Verify margin activity and charges.
Not only can margin add substantial risk to your investments, the margin fees can add up. Ensure that your use of margin is consistent with your investment objectives and that you understand how much monthly margin interest you are paying.
Analyze the overall legitimacy of the account statement.
Confirm that there are no red flags with your overall impression of the account statements. Do the statements look similar to what you have received in the past? Do they look professional? Do they look doctored or altered in any way? Is the logo and contact information for your brokerage firm accurate?
Staying vigilant and properly reviewing your account statements as described above is an excellent way to detect an issue before it arises, or to identify a problem before it is too late.