How to Investigate your Investment Adviser or Broker Before You Invest

Most investors chose there financial advisers based on the broker’s personality. However, that is a mistake. Liking your financial adviser is important, but before you invest your life savings with someone, there are seven steps you should take:

1. Know your investment objectives and try to properly articulate those objectives to your adviser. Are you looking for growth or income producing securities? Is a tax advantage strategy most appropriate for you? What are your retirement goals? These are all questions you must ask yourself before seeking an adviser.

2. Get references. Ask friends and family for the names of brokers that have served them well over the years. After choosing the adviser, ask the adviser to provide additional client references that you can call to get a better sense of the broker and his or her general trading strategy.

3. Take your investment plan and meet each broker that you are considering.  Talk with the prospective broker about what you want and asses how responsive they are to your needs. Ask about their experience and level of education. Remember initial broker consultations are free of charge and confirm that the initial meeting is free before agreeing to meet the broker. Take your time and meet with several brokers before making a decision.

4. Ask the broker about his or her fees and commissions and have the broker give you examples of how the fees are calculated. Are the fees calculated based on each trade or an overall management fee based on the size of the account.

5. Decide whether you will use a discount brokerage or a full service brokerage.  Determine how much service you will need from your broker and how much you are willing to pay for that service.

6. Honestly and accurately state your personal information on your account opening forms. Make sure to properly state your net worth, liquid net worth, age, investment objectives and risk tolerance. If you don’t tell the truth, it will be more difficult for the broker to make suitable recommendations.

7. Check your broker out through the Central Registration Depository System “CRD” on FINRA’s website. This information will alert you to the brokers current licenses, whether he or she has been sued, whether any enforcement actions have been taken against your broker and what states your broker is licensed to practice. The CRD is a computerized database that holds licensing and registration information on over 600,000 stockbrokers and over 6,000 brokerage firms.

Remember, picking a financial adviser is a very important decision. You should treat the decision with the same level of care that you would chose a doctor or a lawyer. Do your research before making a decision to limit the risk associated with this very important decision.

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