Educational Consumer Tips


Author: Better Business Bureau

The following is general information regarding investments. This report contains a step by step guide to follow when considering entering the investment world, as well as the Do's and Don'ts when investing.

SELECTING YOUR BROKER: If you are making an investment through a broker, you must decide which brokerage firm to use to make your investment. 

1) Think through your financial objectives and prepare a personal financial profile. 

2) Talk with potential salespeople at several firms. If possible, meet them face-to-face at their offices. 

3) Contact the BBB to find out the complaint history of the prospective firm. 

4) Understand how the sales representative is paid; ask for a copy of the firm's commission schedule. 

5) Determine whether you need the services of a full-service or discount brokerage firm. Full-service firms will take recommendations regarding what securities you should buy or sell. 

6) Ask if the brokerage firm is a member of the Securities Investor Protection Corporation. SIPC provides limited customer protection if a brokerage firm becomes insolvent. 

MAKING AN INVESTMENT: Generally, a brokerage firm will require a customer to sign a new account agreement. You should carefully review the information in this document. 

1) Who will control decision-making in your account? You will, unless you decide to give discretionary authority to your sales representative to make investment decisions for you. 

2) How will you pay for your investment? Most investors maintain a cash account that requires payment in full for each security purchase. An alternative type of account is a margin account. This means you borrow money from the firm. 

3) How much risk should you assume? Categories of risk may have such labels as "income," "growth," aggressive growth." Be sure that the investment products recommended to you reflect the category of risk you have selected. 

THE INVESTMENT DECISION: Never invest in a product that you don't fully understand. Information regarding the fundamentals of investing and basic financial terminology can be found at your local library or on the internet. 

1) The higher the expected rate of return, the greater the risk; depending on market developments, you could lose some or all of your investment.

2) Some investments cannot be easily sold or converted to cash. 

3) Investments in securities issued by a company with little or no operating history may involve a greater risk. 

4) Securities investments, including mutual funds, are not federally insured against a loss in market value. 

5) Securities you own may be subject to tender offers, mergers, reorganizations, or third party actions that can affect the value of your ownership.

6) The past success of a particular investment is no guarantee of future performance. 

PROTECT YOURSELF: Some of the Do's and Don'ts you need to know about before investing. 

1) Don't believe everything you read-or assume that slick promotion materials are legitimate. 

2) Take your time before investing your money. Research the investment thoroughly. 

3) Don't let anyone pressure you into making an investment decision if not interested or ready. 

4) Get a second and third opinion. Consult someone you can trust. 

5) Research the company's reputation. Contact the BBB for a Business Review on the prospective firm. 

6) Don't believe anyone who promises big returns with little or no risk. 


NASD Regulation, Inc., which oversees the activities of nearly all stockbrokers in the country wants you to know that: 

1) Brokers may not call you before 8:00 in the morning or after 9:00 at night, unless you are already a customer of the broker calling you or you've given them permission to do so. 

2) Anyone calling from a securities brokerage firm must immediately disclose his or her name, address, the firm name, and phone number-and, that the purpose of the call is to sell you something. 

3) If you don't want to receive calls in the future at any time of the day, you can tell the broker to put your name on that firm's "do not call" list. Every firm must have one. 

4) Before concluding business with a brokerage firm, take time to investigate their regulatory background by calling the NASD at (800) 289-9999, or call the SEC (Securities Exchange Commission) at (212) 748-8000 with any complaints you may have on a particular firm. You can also get them on-line. Contact the NASD web site at, or the SEC at 

For more information, contact: 

Better Business Bureau
100 Bryant Woods South, Amherst, NY 14228
(800) 828-5000

This report is general in nature and is not intended as a Business Review on any company, service or product