Six Crucial Steps to Take Before You Select Your Broker
When you make big, financial decisions in your life, you usually
weigh all the options and consider all consequences before you
jump in feet first, right? Making an investment is no different.
Before making an investment, you must decide which brokerage
firm or broker/dealer and stockbroker, account executive, or
registered representative to use. Before you make those
decisions, though, here are six steps you should take:
-- Think through your financial objectives carefully, and
prepare a personal financial profile.
-- Talk with stockbrokers at several firms. Schedule a meeting
with them face to face at their offices, if possible. Ask them
about their investment experience, professional background, and
education.
-- Determine whether you need the services of a full service or
a discount brokerage firm. A full service firm typically
provides execution services, recommendations, investment advice,
and research support. A discount broker generally provides
execution services and does not make recommendations regarding
which securities you should buy or sell. The charges you pay may
differ depending upon what services are provided by the firm.
-- Understand how the stockbroker gets paid. Ask for a copy of
the firm's commission schedule. Firms generally pay sales staff
based on the amount of money invested by a customer and the
number of transactions done in a customer's account.
More compensation may be paid to a stockbroker for selling a
firm's own investment products. Ask what "fees" or "charges"
you'll be required to pay when opening, maintaining, and closing
an account.
-- Find out about the disciplinary history of any brokerage firm
and stockbroker by calling 1-800-289-9999, a toll-free hot line
operated by the National Association of Securities Dealers, Inc.
(NASD). The NASD will provide information on disciplinary
actions taken by securities regulators and criminal authorities.
Your state securities regulator also can tell you if a brokerage
firm or stockbroker is licensed to do business in your state.
Don't skip this important step! If you do business with an
unlicensed securities broker or a firm that later goes out of
business, there may be no way for you to recover your money,
even if an arbitrator or court rules in your favor.
-- Ask if the brokerage firm is a member of the Securities
Investor Protection Corporation (SIPC). SIPC provides limited
customer protection if a brokerage firm can't pay their debts.
Also ask if the firm has other insurance that provides coverage
beyond the SIPC limits. SIPC does not insure against losses due
to a decline in the market value of your securities. For further
information, you can call SIPC at (202) 371-8300.
Remember, part of making the right investment decision involves
finding the brokerage firm and the stockbroker that best meet
your personal financial needs. Don't rush. Do the necessary
background investigation on both the firm and the stockbroker.
Resist those who urge you to immediately open an account with
them.