From time to time, folks ask me for tips on how they can keep from becoming a victim of stockbroker fraud. Here's a few. If you don't practice these, then these are resolutions you'll want to keep this year.
1. Know who you're dealing with. Before working with a stockbroker or an investment advisor, check them out. If their with a broker-dealer, check out their BrokerCheck report, for free, at www.finra.org. If they are with an investment advisor firm, check them out with your state and/or the SEC, and also obtain a copy of their Form ADV. These reports will let you know if they are registered (licensed) to do business in your state, and also tell you about other things such as regulatory actions, certain customer complaints and arbitration claims or lawsuits against them.
2. Make sure you understand the proposed investments. If you can't explain it to someone, do you think you ought to invest in it - with your own money.
3. Keep your eyes open. One of the worst things you can do, especially in a bad market, is to bury your head in the sand. Open your account statements and review them. Make sure you understand what is going on in your account, and make sure that you have authorized all of the purchases and sales of investments from your account.
4. Be careful about "off the book" investments. If your broker asks you to make a check for an investment payable to someone or something other than the firm, get more details. Make sure the investment is approved by the firm, and that the broker is not selling away.
5. If you have questions or concerns about your account, get them answered. This may include talking to someone at the firm other than your broker, such as a branch manager or a compliance department representative. If something is troubling you, check it out. And if you get an unsatisfactory answer, keep following up. Its your money.
