Investor Tips

Questions to Ask Before Hiring a Broker

Investors have certain rights and are entitled to certain information that can protect them from investment fraud and abuse. It is important today that an investor proactively seek out that information, as it can be a helpful tool in protecting against broker misconduct and investment fraud.

Ask Before You Invest

In which state is your office located?
Be very careful if you receive a "cold call" from someone you've never met claiming to be a stockbroker from another city (New York, for example) pushing you to invest money "now" in order to get in on a "hot deal." The best advice may be simply to hang up. There are plenty of reputable, local financial advisors with whom you can establish a mutual relationship after meeting them in person and conducting some due diligence.

Are you registered with the National Association of Securities Dealers (NASD) and your State Division of Securities?
Under federal securities laws and state "blue sky" laws, brokers and brokerage companies must be registered to sell securities to residents of their states. If a broker says that he or she is not required to be registered, ask why and verify this with your State Division of Securities.

Are the investments you sell registered in this state?
In addition to registration requirements for brokers and their firms, most states require that the securities sold to their citizens be registered or properly exempt from registration. If the broker says their investments are exempt, or not required to be registered, ask which specific exemption was granted and then verify this with your State Division of Securities.

What is your Central Registration Depository (CRD) number?
The Central Registration Depository of a State's Division of Securities allows investors to obtain information about a broker's work history and possible disciplinary history.

How long have you been in the investment or brokerage industry?
This information can be verified through your State Division of Securities.

Can you guarantee a certain amount or percentage return on my investments you recommend to me?
There is no such thing as a "guaranteed investment", so be wary of such a statement.

Can you send me some written information about yourself, your firm, and the investments you recommend to your clients?
Investors have a right to this written information, and a broker should always be able to provide it. Beware of "flashy" or handwritten material.

Will you provide me with copies of all brokerage account forms and agreements that I sign if I hire you as my broker; will you also explain any questions I may have about these documents?
Never, ever let a stockbroker (or someone else in the office) complete the new account opening forms for you and then ask you to just sign it. These forms are very important and will set the stage for your entire relationship with the broker and the firm. Complete the forms yourself to ensure that all of the information is accurate. Ask as many questions as necessary to make sure you understand what the forms mean. Get copies of everything, too.

Can you give me references from your clients in my State or community?
Of course, no client to whom a broker refers you is likely to be a dissatisfied one. However, you can get a sense of how the broker works.

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