Mom, Edward Jones, and a CIT Bond

[region2]

Mom, age 75, is an income investor. Uses Edward Jones (despite my warnings) to buy munis and corporate bonds. Holds them to maturation and spends the coupons.

A few weeks ago, her broker called her out of the blue, and told her that he had sold a CIT bond for her for about 37 cents on the dollar. My mother had not had any contact with him before he sold the security.

This may have been a great move, or perhaps, not so great. Time will tell.

I exclusively am an index mutual fund and ETF investor thru Vanguard, Schwab, and Fidelity and have never used (or been used by) a broker.

Was this all legit? Does this happen all of the time to little old ladies in small Midwest towns? Should my mother take any action?

 

[FIRE'd@51]

Was this all legit?

It could be. Depends upon what authority she has given the broker. If she hasn't given him discretion to buy or sell without her permission then it's certainly not legit.

 

[clifp]

As a general rule (with many many exceptions) when clients open a full service brokerage they generally authorize the brokers to make transactions like this on their behalf. It would rare for broker to risk his license and make an authorized trade. They generally get in trouble for buying stuff that isn't suitable for the client to be buying but seldom for selling.

To be fair to the broker, as recently as March 2008, CIT debt was rated by S&P as single A, several notches above junk so without know the timing of the transaction, we don't know if buying a CIT bond was legitimate income investing or stupid speculation unsuitable for a person of her age.

She absolutely should follow up, and if she is comfortable with the situation, I'd suggest you be on the conference call with the broker. This will put the broker on notice that there is somebody watching her account, beside a 75 year old lady.

 

[region2]

Thanks for the advice. I think we will make a conference call. I will remind my mother that she probably did sign an agreement when she became an investor with Edward Jones.

 

[Maurice]

I'd also be curious about when they bought it for her, and whether or not Edward Jones was a principal to either or both transactions.

 

[saluki9]

Also don't forget that the broker makes nothing from selling a bond.

 

[LOL!]

Also don't forget that the broker makes nothing from selling a bond.

Would they make any money by having one client sell bonds and another client buy the same bonds? He could have two or more clients ping-ponging among themselves.

 

[saluki9]

Would they make any money by having one client sell bonds and another client buy the same bonds? He could have two or more clients ping-ponging among themselves.

It's illegal for one. Cross trades are only found in the investment advisory community (fee based) because FINRA doesn't allow commissioned brokers to do them. In addition you have to prove that both clients are getting a better price than they would in the open market.