Are you just starting to invest and ready to open your first brokerage account? Are unhappy with your current broker? Here are some tips from the Financial Industry Regulatory Authority (FINRA) on how to find the right financial advisor and brokerage firm.
Ask for Recommendations
Talk to your friends and family members about who they invest with and for how long. Ask them specific questions about their broker such as the kinds of services they were provided, whether the broker communicates with them regularly, have they had an problems or “bad experiences” with either the broker or his/her brokerage firm? Don’t hire a broker just because he or she came highly recommended, and don’t stop when you get one name. Try to compile a list of at least 5 potential broker candidates.
Research the Broker Candidates
Once you have compiled a list of broker candidates, do your homework. Make sure that the individuals and their firms are registered. Individuals and companies that are authorized to buy and sell stocks, bonds, and other securities, i.e. “stockbrokers” and “brokerage firms” are required to be registered with FINRA. Most investment advisers and their firms must be registered with either the Securities and Exchange Commission (SEC) or the state they operate in. It is possible for an individual to be both a stockbroker and a Registered Investment Adviser.
Start your research by reviewing the BrokerCheck Report for each individual on the list. BrokerCheck will tell you what licenses an individual holds, his or her work history, any prior customer complaints or criminal convictions, and the states in which the individual holds a securities license. Look for potential red flags such as frequently changing brokerage firms or many customer complaints, and make sure the broker is licensed in the state in which you live.
FINRA’s BrokerCheck database will allow you to search for both stockbrokers and investment advisers that are registered with the SEC. If an individual is not found in BrokerCheck, it is possible that he or she is only registered with a state securities regulator. The Florida Office of Financial Regulation’s database may be searched here. A complete list of state regulators is available on the North American Securities Administrators Association’s website that can be found here.
If a candidate is not found on either BrokerCheck or a state securities regulator’s website, he or she may not be licensed.
Interview the Finalists
Once you have narrowed down the list to a few lucky finalists, interview them – preferably in person. Having a good rapport with the person handling your hard earned money is essential. If you get a bad vibe from him or her, you should probably consider moving on to someone else. Just because the broker may get along with one of your friends or relatives does not mean he or she is a good fit for you.
Ask all of the candidates about their background, the licenses they hold, and if they have had any disciplinary actions or customer complaints. Make sure their answers match up with their BrokerCheck reports.
Inquire about the types of products and services they offer. Are there types they don’t offer?
How do they get paid? What fees and expenses does their firm charge? Is there a minimum account balance? What is their investment philosophy? How often do they meet with their clients?
Remember that the investment professional you hire works for you! Don’t hire someone who evades your questions, or who you don’t feel comfortable questioning. If you don’t understand something, ask for more information. It’s your money.