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When Investing Protect Your Money: Check out Brokers and Advisers


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If you are a first time investor turning to the market to help secure your future, be sure you chose a reputable broker or investment adviser. According to the U.S. Securities and Exchange Commission (SEC), federal and state securities laws require brokers, advisers and their firms to be licensed or registered, and to make important information public. But, it is up to the consumer to find that information and use it to protect their investment dollars. This information is easy to obtain, and one phone call or web search may save you from sending your money to a con artist, bad broker or disreputable firm.

The SEC suggests that before you invest, make sure your brokers, investment advisers, and investment adviser representatives are licensed to sell securities. Always check to see if they or their firms have been disciplined by regulators. This is very important, because 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.

To check out a broker, its representatives, and the firm they work for you can go to the Central Registration Depository (CRD). CRD is a computerized database that contains information about most brokers. For instance, you can find out if a broker is properly licensed in your state and if they have had any problems with regulators or received serious complaints from investors. You will also find information about the broker's educational background and where they have worked before their current jobs. You can ask either your state securities regulator or the National Association of Securities Dealers, Inc. (NASD) to provide you with information from the CRD. You can find out how to get in touch with your state securities regulator through the North American Securities Administrators Association, Inc.'s web site at http://www.nasaa.com. You can go to NASD's web site (http://www.nasdr.com/2000.asp) to get CRD information or call them toll-free at 800.289.9999.

Investment advisers get paid to give advice about investing in securities. They must register with either the SEC or the state securities agency where they have their principal place of business. Investment advisers who manage $25 million or more in client assets generally must register with the SEC. If they manage less than $25 million, they generally must register with the state securities agency in the state where they have their principal place of business.

Another way to find out if an investment adviser is properly registered is to read their registration form, called the "Form ADV." The Form ADV has two parts. Part 1 has information about the adviser's business and whether they have had problems with regulators or clients. Part 2 outline the adviser's services, fees and strategies. Before you hire an investment adviser, always ask for and carefully read both parts of the ADV. To view an adviser's recent Form ADV go to http://www.sec.gov/IARD.

For starters, the BBB, along with the SEC, suggest you ask the following questions of the broker, adviser or firm:

  • What experience do you have with people in my circumstances?
  • What license do you hold? Are you registered with the SEC, a state or NASD?
  • What product or service do you offer?
  • How are you paid for your services? What is your hourly rate, flat fee or commission?
  • Have you ever been disciplined by any government regulator for unethical or improper conduct or been sued by a client who was not happy with the work you did?

If you have a complaint against a broker, investment adviser or firm, contact the SEC (www.sec.gov) and your local Better Business Bureau.

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