Table
of Contents
Honesty
in Advertising
Full
and Accurate Information
Disclosure
of Risks
Explanation
of Obligations and Costs
Time
to Consider
Responsible
Advice
Best
Effort Management
Complete
and Truthful Accounting
Access
to Your Funds
Recourse,
If Necessary
In
many important ways, an investor is not simply a consumer but a party to a
legal contract. Both the offeror and purchaser of an investment have
rights and responsibilities. This "Bill of Rights" designed to
assist you the investor in making an informed decision before committing
your funds. It is not intended to be exhaustive in its descriptions.
In
many important ways, an investor is not simply a consumer but a party to a
legal contract. Both the offeror and purchaser of an investment have
rights and responsibilities. This "Bill of Rights"is designed to
assist you the investor in making an informed decision before committing
your funds. It is not intended to be exhaustive in its descriptions.
Honesty
in Advertising
Many individuals first learn of investment
opportunities through advertising--in a newspaper or magazine, on radio or
television, or by mail. Phone solicitations are also regarded as a form of
advertising. In practically every area of investment activity, false or
misleading advertising is against the law and subject to civil, criminal
or regulatory penalties. Bear in mind that advertising is able to convey
only limited information, and the most attractive features are likely to
be highlighted. Accordingly, it is never wise to invest solely on the
basis of an advertisement. The only bona fide purposes of investment
advertising are to call your attention to an offering and encourage you to
obtain additional information.
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Full
and Accurate Information
Before you make any investment, you have
the right to seek and obtain information about the investment. This
includes information that accurately conveys all of the material facts
about the investment, including the major factors likely to affect its
performance.
You also have the right to request
information about the firm or the individuals with whom you would be doing
business and whether they have a "track record." If so, you have
the right to know what it has been and whether it is real or
"hypothetical." If they have been in trouble with regulatory
authorities, you have the right to know this. If a rate of return is
advertised, you have the right to know how it is calculated and any
assumptions it is based on. You also have the right to ask what financial
interest the seller of the investment has in the sale.
Ask for all available literature about the
investment. If there is a prospectus, obtain it and read it. This is where
the bad as well as the good about the investment has to be discussed. If
an investment involves a company whose stock is publicly traded, get a
copy of its latest annual report. It can also be worthwhile to visit your
public library to find out what may have been written about the investment
in recent business or financial periodicals.
Obtaining information isn't likely to tell
you whether or not a given investment will be profitable, but what you are
able to find out--or unable to find out--could help you decide if it's an
appropriate investment for you at that time. No investment is right for
everyone.
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Disclosure
of Risks
Every investment involves some risk. You
have the right to find out what these risks are prior to making an
investment. Some, of course, are obvious: Shares of stock may decline in
price. A business venture may fail. An oil well may turn out to be a dry
hole.
Others may be less obvious. Many people do
not fully understand, for example, that even a U.S. Treasury Bond may
fluctuate in market value prior to maturity. Or that with some investments
it is possible to lose more than the amount initially invested. The point
is that different investments involve different kinds of risk and these
risks can differ in degree. A general rule of thumb is that the greater
the potential reward, the greater the potential risk.
In some areas of
investment, there is a legal obligation to disclose the
risks in writing. If the investment doesn't require a
prospectus or written risk disclosure statement, you
might nonetheless want to ask for a written explanation
of the risks. The bottom line:
Unless your understanding
of the ways you can lose money is equal to your
understanding of the ways you can make money, don't
invest!
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Explanation
of Obligations and Costs
You have the right to
know, in advance, what obligations and costs are
involved in a given investment. For instance, does the
investment involve a requirement that you must take some
specific action by a particular time? Or is there a
possibility that at some future time or under certain
circumstances you may be obligated to come up with
additional money?
Similarly, you have the
right to a full disclosure of the costs that will be or
may be incurred. In addition to commissions, sales
charges or "loads" when you buy and/or sell,
this includes any other transaction expenses,
maintenance or service charges, profit sharing
arrangements, redemption fees or penalties and the like.
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Time
to Consider
You earned the money and
you have the right to decide for yourself how you want
to invest it. That right includes sufficient time to
make an informed and well-considered decision. High
pressure sales tactics violate the spirit of the law,
and most investment professionals will not push you into
making uninformed decisions. Thus, any such efforts
should be grounds for suspicion. An investment that
"absolutely has to made right now" probably
shouldn't be made at all.
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Responsible
Advice
Investors enjoy a wide
range of different investments to choose from. Taking
into consideration your financial situation, needs and
investment objectives, some are likely to be suitable
for you and others aren't--perhaps because of risks
involved and perhaps for other reasons. If you rely on
an investment professional for advice, you have the
right to responsible advice.
In the securities
industry, for example, "suitability" rules
require that investment advice be appropriate for the
particular customer. In the commodity futures industry a
"know your customer" rule requires that firms
and brokers obtain sufficient information to assure that
investors are adequately informed of the risks involved.
Beware of someone who insists that a particular
investment is "right" for you although he or
she knows nothing about you.
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Best-Effort
Management
Every firm and individual
that accepts investment funds from the public has the
ethical and legal obligation to manage the money
responsibly. As an investor, you have the right to
expect nothing less.
Unfortunately, in any
area of investment, there are those few
less-than-ethical persons who may lose sight of their
obligations, and of your rights: By making investments
you have not authorized, by making an excessive number
of investments for the purpose of creating additional
commission income for themselves or, at the extreme,
appropriating your funds for their personal use. If
there is even a hint of such activities, insist on an
immediate and full explanation. Unless you are
completely satisfied with the answer, ask the
appropriate regulatory or legal authorities to look into
it. It's your right.
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Complete
and Truthful Accounting
Investing your money
shouldn't mean losing touch with your money.
It's your right to know
where your money is and the current status and value of
your account. If there have been profits or losses, you
have the right to know the amount and how and when they
were realized or incurred. This right includes knowing
the amount and nature of any and all charges against
your account. Most firms prepare and mail periodic
account statements, generally monthly. And you can
usually obtain interim information on request. Whatever
the method of accounting, you have both the right to
obtain this information and the right to expect that it
be timely and accurate.
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Access
to Your Funds
Some investments include
restrictions as to whether, when or how you can have
access to your funds. You have the right to be clearly
informed of any such restrictions in advance of making
the investment. Similarly, if the investment may be
illiquid--difficult to quickly convert to cash--you have
the right to know this beforehand. In the absence of
restrictions or limitations it's your money and you
should be able to have access to it within a reasonable
period of time.
You should also have
access to the person or firm that has your funds.
Investment scam artists are well versed in ways of
finding you but, particularly once they have your money
in hand, they can make it difficult or impossible for
you to find them.
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Recourse,
If Necessary
our rights as an investor
include the right to seek an appropriate remedy if you
believe someone has dealt with you---or handled your
investment--dishonestly or unfairly. Indeed, even in the
case of reasonable misunderstandings, there should be
some way to reconcile differences.
It is wise to determine
before you invest what avenues of recourse are available
to you if they should be needed. One means of exercising
your right of recourse may be to file suit in a court of
law. Or you may be able to initiate arbitration,
mediation or reparation proceedings through an exchange
or a regulatory organization. Additional information
about filing complaints can be obtained through various
regulatory organizations.
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This Investors' Bill of
Rights has been prepared as a service to the investing
public by
National Futures
Association, 200 West Madison Street, Suite 1600,
Chicago, Illinois 60606-3447; 800.621-3570;
800.572.9400 (in Illinois)
Copyright 1987 by
National Futures Association
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