How to Research Your Broker Before They Rip You Off
You wouldn’t hire a babysitter without checking references, so why would you trust someone with your life savings without doing some basic research? Yet most investors never bother to look up their broker’s background until after something goes wrong.
Let me show you how to research your broker in about 10 minutes – it could save you thousands of dollars and years of heartache.
BrokerCheck: Your New Best Friend
FINRA’s BrokerCheck is a free database that contains information about virtually every broker and brokerage firm in the country. Think of it as a background check for financial professionals.
Here’s what you can find:
– Employment history
– Professional qualifications and licenses
– Regulatory actions and violations
– Customer complaints and arbitration awards
– Criminal charges or convictions
The best part? It’s completely free and takes just a few minutes to use.
What to Look For (Red Flags)
Multiple job changes – If your broker has worked at six different firms in five years, that’s a red flag. Good brokers tend to stay put.
Customer complaints – Even one complaint should make you ask questions. Multiple complaints are a serious warning sign.
Regulatory violations – Any violations, even minor ones, suggest your broker has had problems following rules.
Gaps in employment – Unexplained gaps might indicate periods when they couldn’t work due to regulatory issues.
Criminal history – This should be an automatic disqualifier.
Real-World Example
I had a client who lost $200,000 to a broker who seemed very professional and knowledgeable. After the fact, we looked him up on BrokerCheck and found:
– Three customer complaints in the past five years
– Two regulatory violations for unsuitable recommendations
– Employment at four different firms in six years
All of this information was publicly available before my client invested a dime. A simple BrokerCheck search could have saved him $200,000.
Beyond BrokerCheck
Google search – Search for your broker’s name plus terms like “complaint,” “lawsuit,” or “fraud.”
State regulators – Check with your state securities regulator for additional information.
Better Business Bureau – Look up the brokerage firm to see if there are complaints.
Professional references – Ask for references from current clients (though take these with a grain of salt).
Questions to Ask Your Broker
Don’t be shy about asking tough questions:
– How long have you been in the business?
– How are you compensated?
– Have you ever been disciplined by regulators?
– Can you provide references from long-term clients?
– What’s your investment philosophy?
A good broker will welcome these questions. A bad broker will try to change the subject.
The Bottom Line
Spending 10 minutes researching your broker could save you years of problems. Don’t let politeness or embarrassment prevent you from protecting your financial future.
If you discover problems with your current broker, don’t panic – but do take action. An experienced securities attorney like Robert Pearce can help you understand your options and protect your investments.
Remember: it’s your money, and you have every right to know who you’re trusting with it.