Currently there are more than 5,200 registered brokerage firms and 668,000 registered stock brokers in America. There are more than 126,000 people licensed as stock brokers and an additional 1,800 Registered Investment Advisors licensed to do business in Ohio alone. The overwhelming majority of those people are honest and competent professionals.
However, much like any other occupation, there are a few bad apples, and even a good broker can make a serious mistake that can cost you dearly. Protecting yourself starts at the very moment you decide to do business and requires continued diligence throughout your relationship.
- Ask around for references. You have a far better chance of finding someone who will meet your needs if they come recommended from friends or relatives or other advisers. Don’t settle, however, for one name and once you get a list of candidates, personal interviews are a must.
- Ask questions. How long has the adviser been in the industry? What is their investment philosophy? Do they specialize in a particular security or industry? Get references and check them out.
- Inquire as to the cost of doing business. Commission schedules vary widely among the firms and a particular transaction can range from a few dollars at a deep discount house to several hundred at a full-service brokerage. There are also transaction fees, which can add hundreds of dollars to your yearly costs.
- Check the broker’s employment history. A broker’s CRD (industry record) is available on line at http://pdpi.nasdr.com/pdpi/ or you can call (800) 289-9999. You may also request information from the Ohio Division of Securities, Broker Licensing Department.
You can’t stop being attentive after you have made your selection. Sit down and agree on specific account objectives and an investment strategy. Determine your investment goals. Formulate your objectives and decide how much risk you are willing (and can afford) to assume to meet those objectives. Put it in writing. If your financial situation changes, make sure you verify that the broker is aware of the change.
Review carefully all of your account statements and confirmations. If you have any questions, raise them and be sure that you are satisfied with the answers. Account statements can be complex and confusing ask your broker to review a statement with you. If you are not satisfied with the answers, talk to the broker’s manager. In addition to having an obvious business interest in keeping happy clients, the manager has a specific legal responsibility to supervise the broker.
If you think you have a problem and you’re not satisfied with the answers from the broker or his manager, don’t stop there. Write a letter to the compliance department or seek legal counsel. Often, the delay in dealing with a problem trade is used against the investor as evidence of consent for the trade.
As the result of arbitration agreements in account opening documents and court decisions upholding their use, the overwhelming majority of broker/client disputes are settled by arbitration. The National Association of Securities Dealers and the The New York Stock Exchange hear thousands of these cases each year.
Common sense and a healthy dose of skepticism will go a long way toward protecting your assets. Remember, if it’s too good to be true, it is generally neither good nor true.
Dennis Concilla has extensive experience in the area of securities industry arbitrations and heads Carlile Patchen and Murphy’s Broker/Dealer Litigation Group. He is an arbitrator for the National Association of Securities Dealers and has appeared before the NASD, the New York and American Stock Exchanges, and the Commodities and Futures Trading Commission. Reach him at (614) 628-0771 or DJC@cpmlaw.com.