If all you want from a broker is the ability to buy or sell a security on one of the national markets, the Yellow Pages my serve your purpose. If you plan to entrust a broker with more than that, say your life savings, there are a few preliminary but essential steps you must take as a start to protecting your financial future. Failure to take anyone of them increases your peril. Securities investing is an undertaking with enough built-in risks to challenge even the fearless. Choosing the wrong broker is one of the biggest risks of investing and can be avoided.
The following steps are vital to a successful broker selection process:
- Interview more than one candidate
- Check references – more than just one of them
- If an account is to be in more than just your name, have all account owners at the interview
- Inquire intensively about the broker’s (salesperson’s) qualifications, including time in the business
- Recognize that the title “financial adviser” is likely meaningless as are titles like “vice president”
- Ask if the broker has ever been in the business during a down market, especially if the current market is up
- State your goals for investing as clearly as possible. If your purpose is to acquire a future summer home or retire early, say so explicitly
- Pay little or no heed to broker created computerized projections and financial plans
- Read every document and ask every question that you have and keep asking until satisfactorily answered
- Do not sign blank forms or forms with blanks in them
- Check the salesperson’s disciplinary record, available at www.finra.com and often with your state government
Taking each of those steps is by no means a guarantee of market success or even that the broker you select is the best one for you. However, you will have done what you could and likely have avoided a very bad broker choice. Now to follow up, you must immediately open and study each of your monthly statements from your new broker/dealer and do the same with your buy/sell confirmation notices. Continue to ask your broker questions and demand answers to them, preferably in writing (email). If the answers are not satisfactory, promptly contact the managing broker at your broker/dealer’s office.