How Can You Be Sure That A Stock Broker Is Trust Worthy?


If you believe that brokers and other investing professionals put an end to illegal conduct and other shenanigans during the most recent Great Recession, you could be making an assumption that could wind up costing you a lot of money.

Even though Bernie Madoff, the mastermind behind the Ponzi scheme, and Jordan Belfort, the “Wolf of Wall Street,” were both sentenced to prison for their roles in committing financial crimes, unethical behaviour on the part of brokers and other financial professionals continues unabated and undiscovered. Before engaging in business with a broker, financial advisor, or firm, it is critical to complete research on the individuals and organizations involved.

Illustrations of Fraud Committed by Brokers

Here’s an example

The United States Securities and Exchange Commission (SEC) has accused a Massachusetts-based licensed investment advising firm and its owner of engaging in fraudulent activity and has filed charges against both parties. The government charged Family Endowment Partners and Lee Dana Weiss, the company’s owner, with a number of violations, including recommending particular investments to clients without disclosing that Weiss would receive a cut of the profits. Weiss was accused by the SEC of encouraging clients to put $40 million into shares of companies in which he had financial stakes and was compensated.

This article will show you how to determine whether or not your broker can be trusted.

Cold Contacts Should Be Avoided

Be aware of any broker or financial advisor who contacts you without being asked to do so on behalf of a company that you have never done business with before. It was possible to make contact using either a phone call, an email, or a letter. Don’t let invites to investing seminars luring you in with free lunches and other goodies cause you to let your guard down and invest without doing your research.

The SEC also warns consumers to be especially wary of callers who employ high-pressure sales techniques, advertise once-in-a-lifetime prospects, or decline to deliver written information regarding an investment.

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Have a Chat with Someone Who Is Knowledgeable 

You should trust the broker or financial advisor you choose to help you make decisions about your money. Inquire a great deal about the services offered by the firm as well as its previous work with customers whose requirements were comparable to your own.

Inquire about the nature of the relationship that will exist between the two of you. When making recommendations to clients about investments or other financial matters, for instance, financial advisors are held to a standard known as “fiduciary,” which mandates that they put the interests of their clients ahead of their own. This is a higher requirement than the so-called appropriateness standard, under which the expert is just expected to offer suggestions that are in the client’s best interests. Broker-dealers are not required to meet the fiduciary standard like investment advisors are, but you might be able to find one who will if you look hard enough.

Go to a different location if you are unable to get plain answers, the individual looks rushed, or in any other way, they are unable to present you with complete and clear information. Be sure to inquire about pricing and any additional costs. In addition to this, registered investment advisors are required to give you both parts of the Form ADV.

Carry Out Some Further Investigation

When looking at a potential financial advisor, conducting a basic web search using the broker’s and the company’s names is the first step that should be considered. That could include recent publications or media reports of purported misbehaviour or disciplinary measures, client dialogues on internet discussion boards, background knowledge, and other specifics. If you type “Lee Dana Weiss” into a search engine, for instance, you’ll get millions of hits, one of which is a news article on the SEC lawsuit against him and his firm.

Then you should try searching directly with the regulatory agencies. A financial advisor or investment firm must be registered with the appropriate federal or state agency. The public can find out who is registered and what disciplinary actions have been taken against them or their businesses.

Remember that the agencies’ enforcement domains can occasionally overlap, and they might offer similar data. Still, it’s best to double-check everything, as each source may have distinct inclusion and deletion policies.

Verify SIPC Membership

Always make sure that the broker is verified by the SIPC. This protection operates in a manner that is comparable to the manner in which the Federal Deposit Insurance (FDIC) helps protect bank customers. Always write checks out to a SIPC member firm, not a broker.

Be Sure To Check Your Statements On A Regular Basis

Putting your finances on “autopilot” mode is the single worst thing you could do with your money. A careful review of your statements, whether they are delivered digitally or in print, can help you catch inaccuracies or suspicious activity in their earliest stages. If your investment results aren’t what you anticipated or if your portfolio has undergone a sudden adjustment, ask questions. You shouldn’t put your faith in assurances that are too sophisticated for you to fully grasp. If you’re not getting straight answers, request to talk with someone higher up. You should never worry that people will think you are stupid or a nuisance if you ask questions.

When In Doubt, Take Your Money Out

Remove your money from the financial advisor if you have any suspicions that they are engaging in unethical behaviour. After that, you should register concerns with the same provincial, federal, and private authorities whose websites you looked at when you were researching the financial professional in the first place.

There are a few things you can do if you think you have a valid complaint against your broker or advisor. In the event that you have a grievance over a stockbroker, you are required to either register a dispute with the Securities and Exchange Commission (SEC) or with FINRA.

Should One Trust A Broker?

Because there are many different techniques to check brokers’ credentials, it is actually quite unusual to come across a broker who is actively practising without a license. But a registered broker could talk you into investments that are better for them than they are for you. Your funds in their accounts are also vulnerable to being used for the company’s own benefit, such as buying margin or bolstering their own financial statements.