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Brokers

Brokers execute trades for customers and are generally paid commissions when you buy or sell securities through them. Brokers may make recommendations about specific investments such as stocks, bonds, or mutual funds. If a broker sells you mutual funds, make sure to ask questions about what fees you will be charged for the purchase.

Brokerage firms vary widely in the quantity and quality of services they provide for customers. Some have large research staffs and large national operations, and are prepared to service almost any kind of financial transaction you may need. Others are small and may specialize in promoting investments in unproven and very risky companies. And there’s everything else in between.

A discount brokerage charges lower fees and commissions for its services than what you’d pay at a full-service brokerage. But generally you have to research and choose investments by yourself.

A full-service brokerage costs more, but the higher fees and commissions pay for a broker’s investment advice based on that firm’s research.

You’ll want to find out if a broker is properly licensed in your state and if the broker or firm has had run-ins with regulators or received serious complaints from investors. You’ll also want to know about the broker’s educational background, and where he or she worked previously. Using BrokerCheck, you can search for a brokerage firm or individual broker. Your state securities regulator may provide more information, so you may want to check with them also.

The Securities Investor Protection Corporation (SIPC) may protect you if a brokerage firm goes bankrupt or if your securities are stolen. You should check whether your brokerage firm has this important coverage. SIPC does not protect you against declines in your investment holdings.

Questions to Ask

Here are some of the questions to ask when evaluating a broker:
  1. Are you registered with the SEC, a state, or the Financial Industry Regulatory Authority (FINRA)?
  2. Are the firm, the clearing firm, and any other related companies that will do business with me members of SIPC?
  3. Have you or your firm ever been disciplined by any regulator?  If yes, for what reasons and how was the matter resolved?
  4. Have you ever been sued by a client who was not happy with your work or the services you provided or the products you recommended?
  5. How are you paid for your services? What is your usual hourly rate, flat fee, or commission?
  6. What experience do you have, especially with people in my circumstances?
  7. Where did you go to school? What is your recent employment history?
  8. What products and services do you offer? Are you only supposed to recommend a limited number of products or services to me? If so, why? 

Additional Information

Investor Bulletin: Top Tips for Selecting a Financial Professional