Brokerage Account Management

Brokerage account management is one of the most exciting aspects of any financial service specialists work. There are great risks but there are also great rewards. There are a number of responsibilities that are inherent to managing a brokerage account and understanding the do’s and the don’ts can help you avoid some common pitfalls. Let’s review some of the common sense things when managing other people’s brokerage accounts.

Do get Trading Authorization – This is critical if you are going to be managing a brokerage account for someone other than yourself. A trading authorization will allow you to do transactions on behalf of another person. Regardless of the broker/dealer you are using, they will require this form to be on file with proper signatures before they are allowed to accept any transactions from you.

Do lay out a clear contract – If you are managing a brokerage account for another person it is important that you have a clear understanding at the outset of what their expectations are and what you are prepared to offer them. If an investor is expecting a fee of less than $100 a month and suddenly sees a fee of $600 they are going to want to know why. Make sure you discuss fees that the broker/dealer will charge and your fees and ensure that the client understands the difference between the two.

Do understand limits – Managing a brokerage account means that you will have to fully understand the clients requirements as far as liquidity. Make sure you have a clear understanding before you make one single trade what those requirements are. This will help you make well thought out investment decisions for the client.

Do review statements -Regardless of how much you value your broker/dealer make sure you thoroughly review each statement. This will give you not only a better understanding of the strategy you have elected but will also help ensure that an error is not overlooked that could result in a problem later on.

Do communicate – One of the most frustrating things for clients is if you suddenly stop communicating with them. This can create tension, distrust and cause hard feelings. Even if the news is bad, be honest with your client.

Don’t co-mingle funds – If you are managing your own brokerage account and the accounts of one or more clients, do not ever co-mingle funds. Your personal account and each of your clients accounts should be distinctly separated from each other so that no questions can be raised. The possibility of an error is greater when you being mixing funds from various clients accounts.

Don’t churn – It’s very easy to jump in and out of various investments. One of the hazards of this is the amount of fees that can accrue. It’s easy to jump out of an investment when it appears to be at it’s peak, but if you have had it for a short time, you can be costing yourself (and your client) added fees that will wipe out any gains that you have made.

Don’t be sloppy – Make sure that you keep careful records of all transactions for each client. Sloppy record-keeping can result in mistakes that could cause questions later on. Carefully track all purchases, sales, expenses and your fees with every transaction and provide a detailed statement to your clients.

All investment professionals need to ensure that they are exercising good judgment when managing a brokerage account. The list of “do’s and don’ts” are numerous and these are only a few of them. The key to success with your clients is great communication and record-keeping.