When many people think of illegal activities by investment professionals, but think back to the Great Depression. Some people think of Ponzi schemes by Jordan Belfort and Bernie Madoff but then they figure, those people went to jail and therefore wrongdoing by brokers doesn’t happen anymore. But this is wrong.
1. Did your stock broker cold contact you?
If you are trading with a broker or even considering a broker who started contacting you with an unsolicited invitation, think twice. You could’ve received contact from what you thought was a reputable company through an email, a phone call, or even a letter. But don’t get sucked in by these invitations. Don’t end up draining your bank account going to these investment seminars that give you a free gift or a free lunch. In these situations generally speaking the only purpose of such educational products is to get you to lower your garden to start investing without doing her homework. In fact, out of people 40 years or older, 64% have received invitations to those free lunch seminars. You can use the SEC website to review the high pressure sales tactics that suspicious brokers might use and then respond accordingly.
2. Are you comfortable talking with your online stock broker?
When you are looking for a broker, or just evaluating the broker that you already have, make sure that you are comfortable with them. Make sure that they are equally comfortable with you and that they can provide you with information about products, services, and advice if you want it. Whether you have been with them for a while or you are considering hiring their services, asked a lot of questions about what their company offers and what other clients have experienced. They should be able to give you contact information for other clients so you can figure out personally what their experiences were. Just like hiring an attorney, you don’t want somebody who simply done well with other clients. You want something was done well with clients similar to yourself. On that note you want to figure out what relationship you’re going to have with them. Because of the fiduciary standard, they have to put your interest above their own especially if they are doing something like recommending investments. Beyond that there is the suitability standard which states that the professionals are required to make recommendations consistent with your best interest. All investment advisers have to follow fiduciary standards but brokers do not. So if you are getting straight answers or they seem somewhat unwilling to provide you with clear information, go somewhere else. And of course always ask about the commissions and fees. A legitimate broker has to provide you with both parts of the ADV form.
3. Have you done your research?
When you are trying to find a financial professional to bring into your life, start with some simple googling. Before you open a financial account with any broker, look up the broker and look at the name of their firm. You might find media reports that they have had disciplinary actions brought against them, you might find new releases on client conversations, background information, or other things. If you were to type in “Lee Dana Weiss” you would get a great many results especially the newest SEC complaints filed against him and his firm. They have been all over the news and for good reason, well not necessarily good reason but because they have done something that people need to know about.
After you have researched the broker, try searching the different regulatory agencies directly. All legal financial brokers, advisers and professionals have to register with federal and state securities regulators. So any disciplinary actions that have been taken against that person or their firm will be available to the public. If you see multiple things understand that some agencies have overlapping jurisdictions though it might just be the same issue multiple times. Nonetheless it is well worth checking because they could’ve had different policies in the past and sometimes that information might be removed. Check:
- State securities regulators
Every state regulator will have information on registration, disciplinary actions, and licensing for all brokers.
This is a great source of information for brokers as a nonprofit organization.
The SEC offers a primary source of information. Here you can find information on conflicts of interest, fee schedules, services, and business background for staff members, education, and more.
4. Verify SIPC Membership for Your Online Broker
Check to see if the broker is a member of the securities investor protection Corporation. This is a nonprofit group that protects investors like you for up to $500,000. It protects you if a firm goes out of business much the same way that if your bank goes out of business you have the FDIC to help you.
5. Look over your statements
It is not in your best interest to invest on autopilot. This, unfortunately, is something that happens all too often because of how automated the investment process is. It can be easy to simply look at a statements and move on which the same way that people glance over there bills with nothing more than a cursory glance before paying the phone bill that might have been a few hundred dollars more expensive than anticipated. Make sure your online stock broker is doing their job.