General Stock Investment Strategies/Brokerage Client Agreement Clarification
Hello. Please advise me regarding the following situation:
My uncle recently passed away. His wife is the administrator of his estate. Many of his financial assets were held in the David Lerner Associates (DLA) brokerage. She did not hold any accounts with this brokerage and had no relationship with them. She is now in the process of transferring his assets to "Estate Of" accounts. She had been under the impression that there could be one estate account, held at a local bank, and that the proceeds of any financial assets he had in other banks and securities could be transferred to that one account. She spoke with the DLA agent who has handled his accounts there. He advised her that she could not do that with these accounts, and that she would have to set up estate accounts with DLA. He then provided her with client agreements for each of the accounts he held at DLA. She has carefully read the fine print, and she is very worried. She called the agent and discussed her concerns; he replied that the language was standard jargon used by the company and that she has nothing to worry about. He maintains that without her signature, the accounts cannot be transferred. This, however, does not alleviate her concerns. She is concerned that if she signs, he will have authority to make risky investments, purchase on margin, and that even her personal assets, including her house and property, could be pledged against her will and without prior notice to her.
Since you are both an attorney and investment adviser, I think you would be very qualified to answer the questions. I have attached a copy of two pages of the client agreement. The first page contains language she underlined. Then there is clause #20 on the second page, which she is very concerned about. Please advise if there is any liability to my aunt's personal assets or those held by my late uncle if she signed the client agreement. I want to thank you for taking the time to address my questions, my aunt's concerns, and for any helpful advice you can provide.
Alex, sorry to hear about the death of your uncle. I can't get too specific with advice on this site, but here are some general comments that may be useful as your aunt settles the estate; some are very specific to the firm you mentioned.
Generally, the administrator of an estate can open accounts in the name of the estate, and should not be limited to the firm that currently holds any securities or funds. There are some special account types, retirement accounts for example, where there can be limitations but that is specific to the account type and the account custodian should inform you of those kinds of limitations. It might require a two-step but it should be possible to hold typical investments (stocks, bonds, mutual funds) at whatever firm you prefer. If you don't like one, go somewhere else.
When you open a brokerage account at any broker-dealer firm, much of the account language will be similar. It may include language about the use of margin (borrowing), though typically you would need to authorize the use of margin separately and wouldn't check that box if you didn't plan to do that. It will typically authorize the firm as your agent for executing transactions, otherwise it would be difficult to act as a broker. So some of this is routine/typical though again, these are general comments and I didn't real the entire DLA agreement - you might compare it to other firms to see any noticeable differences.
Now a comment that's more specific. DLA has been in the news quite a bit over the past few years in connection with sales of private real estate investment trusts, in particular the Apple REITs (no relation to Apple of iPhones/Macs/etc). If you Google around you'll find SEC & FINRA actions, attempts at a class action suit, etc. There have been claims that the REITs were oversold to clients. Unlike typical mutual funds, stocks, or publicly-traded REIT shares, which are easily bought and sold at any time, private REITs are typically illiquid and are not even valued regularly.
Where this becomes relevant is if your uncle's account holds any of these private REITs. If so, it's essential to understand the investments and the terms by which they can be liquidated or transferred. It might be impossible to transfer them elsewhere, I don't know. There might be some kind of provision where you can liquidate them at death - you should find out. Point being, if you had mentioned a different firm, or said this involves garden variety stocks & bonds, I wouldn't have mentioned this. With DLA so much in the news about private REIT sales, it seems important to mention this so you'll find out more if the accounts did indeed hold them. When settling an estate, it's common to convert a lot of it to cash so liquidation restrictions may be an issue; if allegations are true about DLA, it's conceivable they might attempt to preserve the REIT investment rather than let you invoke a liquidation-at-death clause (if there is one). Again, I don't know, but it's something to be aware of and ask about.
Again, my condolences on your loss, hope that's helpful.