American Express Brokerage: avoid them!

[Guest rgeary]

January 12, 2001

American Express Brokerage

70400 AXP Financial Center

Minneapolis, MN 55474

Dear American Express Brokerage,

My immediate purpose for writing this letter is to check up on my complaint with case number 455561.

As background, at 10:44 AM PST on Tuesday morning, January 2, I attempted to sell what my positions page told me was 300 shares of JPM on the margin side of trust account &&&&&&&&. Shortly after 11:00 AM on the same day, I noticed that the order had been canceled, and that I had been notified that the cusip number for JPM had changed. I immediately called customer service and was connected to a telephone broker, who offered to help me make the sale at the online commission price (free in this case).

The explanation the broker gave me for the canceled order was that JPM was merging with Chase that day, and that my positions page had not yet become aware of this, so the order was rejected by the trading system. I was also told that trading through a telephone broker was the only way I could have sold a merging stock that day. I was initially unsatisfied with this explanation (I figured if your telephone broker was able to trade JPM, then your website should have been able to also if it were programmed well; after all, mergers are quite common), so I called some of the other online brokerage firms I use. One of them did tell me that on the day a stock merges, there is a period of an hour or so when one might run into problems placing orders on it due to the change in ticker symbol, but that the website alerts one of this on the positions page. As one of the more expensive “discount” online brokerage companies, you might want to consider adding such a feature to your website as well.

The telephone broker who assisted me in the sale of what had become, that day, 1110 shares of post-merger JPM inadvertently sold the shares on the cash side of my account, from what I’ve been told. While the correct value of the sale was added to my trade date balance, this resulted in a short position of –1110 shares of post-merger JPM, leaving my original position of 300 shares of pre-merger JPM intact. To add insult to injury, the next day my positions page showed a short position of –4107 shares of JPM, apparently double-multiplying by 3.7, the merger exchange ratio! At present, my positions page still shows that on the cash side of my account I am still short 4107 shares of JPM, and on the margin side of my account (which correctly accounted for the merger only once) I own 1110 shares of JPM.

This reflects a very serious flaw in your system—I don’t care how rare it might be. When I first brought the problem to the attention of a customer service representative, I was told that it was merely a website bug and that everything would be OK after the settlement date (January 5). If this had been the case, it would not be such an outrageous problem. Nor would it have been so outrageous if someone had been able to correct the problem immediately. I would have thought that a two hundred thousand dollar error on your part would have received top priority. But from what I’ve been told by customer service, I must wait the usual 5-10 business day period for the case to be reviewed. Meanwhile, I have also been told that my account is effectively frozen—I am limited in what I can remove from the account by the enormous short position inflicted on my account by one of your expert brokers. I suppose this implies, were it nor for the lucky fact that I had enough equity in the account to begin with, that I would be receiving margin calls from you right about now as JPM soars in price.

This brings me to another problem I had on January 2, which, though resolved by now, is equally outrageous. On Friday, December 29, 2000, I placed a market order to buy 732 shares of PWER. I kept a close watch on my email alerts, and within a few seconds I was told that my order for 732 shares of PWER had been filled in three different lots. I received no other emails that day regarding PWER, and both my positions page and my portfolio page correctly showed that I owned a total of 732 shares of PWER.

The following Monday, however, my positions and history pages showed that I owned 1464 shares of PWER, all purchased at the same time and at the exact same prices. I had received no further fill notifications regarding PWER, nor had my account portfolio reflected the change from Friday. But when I called customer service, I was told that indeed my account showed that I had purchased 1464 shares of PWER. When I insisted that I had not, and that I had evidence supporting me, she told me that sometimes customers accidentally double-click when confirming their orders, resulting in the order being placed twice, and that when this happens, American Express Brokerage cannot be held responsible for the double order. As you can see, my address is not in Palm Beach, Florida. I told her that I had not double clicked the brand new mouse I had just installed before placing the order, but again, I was told that my complaint would have to be placed at the end of what appears to be a long list of similar cases awaiting review.

This explanation is truly beyond belief. However, with even the remotest possibility that such a flaw in the design of your website exists, and even though the double order was canceled by the settlement date, it is alarming. Unless you are willing to assure me that your customer service representative (whose name, unfortunately, I did not take down) was giving me unauthorized false information about the condition of your website, I will avoid making any further trades on any of my securities during their remaining time at American Express Brokerage.

This raises the larger issue of why I, or anyone for that matter, should remain a customer of yours in light of the deplorable service I have received and continue to receive up to this very moment. I was one of many investors who were attracted by your offer of unlimited free trades in accounts with large enough equity. While I knew that you had every legal right to rescind this offer without warning, it greatly soured my opinion of American Express when this happened so shortly after the offer was made. I am probably one of the many customers whom your researchers told you would be “unaffected” by the change in policy, and whom you would therefore retain—at least for the time being—mainly due to the inconvenience of brokerage account transfers. However, that will likely change in the very near future.

I follow an investing strategy that involves trading different securities at fixed intervals—some monthly, some quarterly, and others annually. Thus my trades are concentrated in certain times of the year. Upon finding out about the change in free trade policy, I called customer service to ask some questions. I found out that the 10 free trades I was allowed each month would not accumulate, but that I was entitled to the 10 free trades each month for each account I had that met the minimum equity level requirement. I was also told that if I had more than one account under the same title, tax ID and registration type, I could journal securities between them with a mere phone call. I thus decided to open two more accounts, effectively giving me an adequate 30 free trades per month, with the intention of distributing my trades among them, and journaling securities between accounts before each trade if necessary.

All went well until I started requesting security journals. Apparently your policies change on a monthly basis, or else they differ according to whether the lottery connects me to your Colorado branch or your Minnesota branch when I dial customer service. I have been told on occasion that such a journal between accounts would require a written request, delivered through the mail, and directed to the Change of Ownership Department, even though the action requested involved no change of ownership whatsoever. Other times a faxed letter, signed by both trustees, has been sufficient. Yet even then I have discovered that my requests have been either lost or ignored. Fortunately I have discovered a competent employee in your back office who is willing to do the journaling on the same day that I send him a signed and faxed request, but this is still a lot more hassle than the phone call I was originally told would be sufficient.

For your information, I am in the process of opening a brokerage account with Brown & Co., who, as you no doubt know, offers market orders at $5 a trade. The estimated $1000 I save on commissions each year by remaining at American Express is no longer compelling, considering the hoops I must hop through to obtain my free trades, and the enormous risk I apparently assume each time I click to confirm a market order. I haven’t even mentioned the times I’ve had to request trade confirmations that have been missing from the envelopes containing others, or the long delays I’ve experienced in having check deposits posted to my accounts due to being misplaced. I may yet decide that at the bare minimum, I am safe in letting my annually traded stocks reside in your possession each year so as to avoid the $150 fee I would have to pay to close down the three accounts, but I’m not so sure. If I do, I am still frustrated enough that, should I happen to assume any margin debt in the future, I will be utterly scrupulous in making sure that every cent of it resides at Brown & Co. (I also notice that their lending rates are significantly lower than yours) In short, I will see to it that you never make any money off of me as customers.

You might also be interested to know that I intend to post this letter, along with any replies you might send me, to the investing message boards I frequent at The Motley Fool and elsewhere on the Internet.

Sincerely,

[Guest LTurner]

Sorry about your experience... not the first time I've heard such stories. Sometimes working with a full service brokerage is worth the expense.

As a further note... you may wish to contact their compliance and legal departments directly to lodge your complaints. As the service people you speak with are certainly not going to forward such information.

Best of luck going forward with Brown...

[Guest rgeary]

Sorry about your experience... not the first time I've heard such stories. Sometimes working with a full service brokerage is worth the expense.

Maybe so. However, the service I've gotten from places such as Ameritrade and FinancialCafe has been flawless, while American Express' has been by far the worst. I shudder to think about the mistakes they'd be capable of making with a Roth IRA.

As a further note... you may wish to contact their compliance and legal departments directly to lodge your complaints. As the service people you speak with are certainly not going to forward such information.

Do you have any suggestions as to where I could find that contact information? Should I just ask customer service for it?

Best of luck going forward with Brown...

Thanks.

Robbie Geary

[Erik Read]

Next time you call the "service line" ask them if there is a contact or address for mailing Firm Complaints to. They ought to direct you to a "Supervisor" or "Compliance Manager".

Good luck - sounds like a terrible experience.

[John G]

Day 1 IPOs, merger/stock conversions, symbol/exchange changes, etc. often cause problems for systems. Many brokerages will flag these in a notice box or pop up on the day of the event with the note for account holders to call an office to get a transaction completed.

Second point, you should always examine an account later in the day after submitting an order. The earlier you catch a problem, the easier it is to get it corrected.

Don't think telephone-to-broker transactions can't go wrong. In Dec, I submitted on a couple of day orders for a specific block of a thinly traded Nasdaq stock and ask the broker to call me if the order was filled. Each time I called, I got a new person and got no info that any orders were filled. Surprise suprise! I had three blocks of stock. This story has a good ending as the broker congratulated me on my "timing" when the stock moved up $6/sh at year end. The communications problem was exagerated by erratic holiday schedules of the brokerage staff.