Selling away

From CEOpedia | Management online

Selling away happens when a broker proposes the client to buy:

  • stock or
  • obligations

which are not usually traded by his company. Such an offer is usually a violation of security regulations of the company. Most trading companies have their lists of traded securities. Before they are listed, they are:

Securities that are not on the list does not go through that process. Therefore, the risk of investment is not known. The selling away is not illegal. However, it happens in most cases when the client asks his broker about such securities. If he is informed that the risk cannot be assessed by the trading company and despite this, he wants to purchase such papers, the company can do this[1].

Reasons of selling away

Brokers can involve in selling away for a number of reasons. One of the reasons is that they are working for a smaller firm which does not carry a full assortment of products like the one the broker wishes to sell to you. The firm can not have:

  • the resources and
  • the due diligence capacity

to correctly evaluate and participate in the product, but nonetheless, the broker wants to sell it. Sometimes this takes part with insurance-based products which can have a securities component. For example, a variable annuity, where the broker has an individual insurance license to sell this kind of product because the firm does not possess an insurance division.

Selling away from certain items have to be always done with the guest's best interest in mind. It might never be done merely to steer guests away from inexpensive items. When you can not clearly substantiate your reason for the warning then your greed will be exposed. That should be merely done with items that were not right received by past guests. You have to show to the guest that you are going to support them with making a better decision[2].

Breaking down selling away

Selling away take places when the broker sells investments which are not the part of the products offered through their firm. At some times, the broker can do this because the client wants to buy a product that has not been yet approved through the broker's firm. The broker breaks the rules because they wish to earn a commission. This might frequently happen when the investments in question are placements of:

  • private or
  • other non-public investments.

Generally, selling away is an infringement of securities regulations[3].

Examples of Selling away

  • Selling stocks, bonds, or other securities outside of the broker’s firm
  • Recommending investments that are not approved or regulated by the Financial Industry Regulatory Authority (FINRA)
  • Offering investments that are not registered with the Securities and Exchange Commission (SEC)
  • Telling clients to invest in a private venture or an unregistered security
  • Advising clients to invest in a start-up business or a business venture without revealing any of the associated risks
  • Offering clients to invest in a limited partnership
  • Selling high-risk investments without warning the client of the potential risks
  • Recommending investments that may be too risky for a particular investor's financial situation.

Advantages of Selling away

Selling away is when a broker proposes a client to buy investments not held or approved by the broker's firm. This practice can have several advantages for the client, including:

  • Access to investments which may have higher returns and lower risks than those held by the broker's firm.
  • More control and independence for the client to choose their own investments.
  • Brokers may have access to exclusive deals and opportunities that may be unavailable through their firm.
  • The broker may provide additional services and advice to the client in order to maximize returns on their investments.
  • Greater flexibility in investment strategies and goals, allowing the client to tailor their investments to their individual needs and preferences.

Limitations of Selling away

Selling away occurs when a broker proposes to a client to buy or invest in securities or investments that are not held, offered or approved by their brokerage firm. This practice is not regulated by the Securities and Exchange Commission (SEC) and is seen as a serious breach of trust between a broker and a client. The following are some of the limitations of selling away:

  • First and foremost, selling away carries the risk of fraud, as the broker is not regulated by their brokerage firm or the SEC. This means that the client may not be informed of the actual risks of the security or investment, or may not be given accurate information about it.
  • Secondly, the client may not be aware of the qualifications or experience of the broker offering the security or investment.
  • Thirdly, the client may not be aware of the fees associated with the security or investment, or may not receive any benefit from them.
  • Lastly, the client may not be able to receive any protection from the Financial Industry Regulatory Authority (FINRA) or the SEC if the security or investment turns out to be fraudulent or does not perform as expected.

Other approaches related to Selling away

Selling away is when a broker proposes the client to buy investments that are not part of the broker's offerings. While this practice can be beneficial to the client in some cases, it can also be risky and expose the client to investments that are not properly regulated or may even be fraudulent. Other approaches related to selling away include:

  • Unsuitable recommendations: A broker may recommend investments that are not suitable for the client, either due to their risk profile or lack of understanding of the product.
  • Unauthorized transactions: A broker may execute transactions without the client's authorization. This can be especially dangerous if the client is unaware of the transaction and cannot monitor their investments.
  • Misrepresentation or omission of material facts: A broker may misrepresent or omit material facts in order to convince a client to invest in a particular product.

In summary, selling away can expose a client to a variety of risks, and other related approaches, such as unsuitable recommendations, unauthorized transactions, and misrepresentation/omission of material facts, can lead to further loss of value or even fraud. As such, it is important for clients to be aware of their broker's practices and to understand their own risk profile when investing.

Footnotes

  1. ↑ (A.I. Khwaja, A. Mian 2005)
  2. ↑ ( R.A. Lewins 2010)
  3. ↑ (D. Hayden 2011)


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References

Author: Klaudia Święs

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