If you’re an avid investor, chances are you have partnered with a broker at some point in the journey. In short, a broker is someone who buys and sells both stocks and other securities within your investment portfolio based on market conditions to help you generate as much from the mix as possible. In return, you pay your stock broker a fee for his or her services.
To that end, establishing a solid partnership with your broker at the onset is critical to ensuring that your long-term journey together is a successful one. It’s important to make sure you work with someone who you trust, who you feel comfortable talking to, and who has the qualifications, credentials and experience required to handle your hard-earned money. So, just how can you properly vet your broker? Then, once you’ve found one, how can you continue to cultivate and strengthen that communication? Today, we are discussing a few ways to do just that. Let’s get started.
Ask Questions Early
Ultimately, brokers are out to form business relationships and earn an income, just like anyone else. To that end, they often have marketing slicks and similar collateral at the ready, looking for an opportunity to form that connection. While it’s helpful to accept those materials and read over them, don’t let them be the end all, be all. Instead, dig a little further. Don’t be afraid to ask as many questions as you need to during the initial interview process.
Are you concerned about risk tolerance? Ask your broker what he or she recommends and the path they usually follow for similar clients. Wondering about the experience and background of a particularly young broker? Ask to see a resume and work history. At the end of the day, this is your money you’re putting in their hands and it’s important that you don’t go into this with doubts or uncertainties.
The way your broker responds will tell you a lot about what it will be like to work with him or her. Is he quick to email you or call you back when you inquire about something? Or, does she take days to get back to you? Are you left feeling as though your questions were insignificant or silly, or does your broker take the time to seriously entertain every inquiry and respond professionally, thoroughly and clearly?
The question and answer process, above any other part of the initial workings, will be the most telling. A solid broker should listen intently, speak carefully and always make you feel like a valued client.
Understand the Fees
Your broker will charge a fee as he or she manages your funds. This is a standard part of the industry and one to expect. However, not all brokers follow the same fee schedule and as such, it’s important that you understand exactly how yours will make money. As a general rule of thumb, most brokers receive a percentage of the total money your portfolio generates. Therefore, as your account continues to grow, so does your broker’s fee. Keep in mind that your broker should never try to steer you directly toward funds that are offered by his or her firm. Instead, yours should keep your best interest at heart.
Along the same lines, understand what account churning is and watch your investments to ensure your stock broker isn’t engaging in it. Put simply, churning is the process of aggressively trading stocks to rack up a commission that is as high as possible, often against the best interests of the financial client. You want someone who only chooses stocks and securities that will benefit your portfolio and you as a customer, not a broker who is solely out to make a dime off of your accounts.
Check out Review Sites
We live in the era of the internet. While that might mean there is no corner of our lives untouched by technology, one of the greatest benefits of this digitization craze is that today, you can find opinions and feedback on just about anything online. Thankfully, stock broker experiences are no different. Before you choose a broker, hop online and do a quick Google search of his or her name, as well as the name of the firm he or she works for. Doing so will likely yield you plenty of first-hand information from people who have worked with them in the past.
You can also visit sites dedicated to reviews, such as Trustpilot, to see if there is any additional information on the broker in question. While one or two negative reviews are not necessarily a reason to jump ship, be wary of someone with consistently poor feedback. The comments left on these sites are usually from personal customers who have something honest to say, so do not be too quick to dismiss them. On the other hand, if a broker has a slew of positive reviews and only a handful of customers who weren’t totally pleased with the service, it’s likely a safe bet and you can keep on with the vetting process.
Ask People You Trust for Their Opinions
This is your money that’s on the table, and as such, it’s a personal decision. That said, go ahead and ask your trusted friends, family members and colleagues if they have ever used a stock broker in the past and if so, who they would recommend.
If they are someone you look up to and whose opinion you value, it’s likely they will have someone solid to recommend. You can also trust them to tell you the truth about their former experiences. Even if they have never been in your shoes before, they can help guide you through the process as you share details, helping you to weed out any wrong decisions and make the one that will benefit you the most.
Don’t Sign Anything at the First Meeting
Finding a broker you can trust will feel like a sigh of relief. As such, you may want to get started right away. Still, hold out and do not sign anything on that first initial meeting. Instead, take the time to read over the paperwork just a little more, discuss it with any family members who are directly involved with your accounts, and make sure you understand every fine print detail before you sign on the dotted line.
Do not bring financial statements to that first meeting, either. Simply use this as a time to get to know your potential broker, ask the questions you need to, and discuss the way the partnership will work. Remember, as with any business relationship, there is an initial research time that must be conducted before you can move forward in confidence. While it might take a little longer and require a little more work to hold several interviews and completely vet each prospective broker before finding the right one, this is a step you cannot afford to skip.
Check with Your State Securities Regulator
Any stock broker qualified to do business in your state will be registered with your state’s securities regulator. So, before you sign anything or take another step forward in the interview process, call yours and give them the name of the broker you are considering.
The office will be able to tell you whether or not the person is registered there and how long they have been conducting business. You will also be privy to any complaints taken out against the broker or any disciplinary actions conducted toward him or her.
To find the contact information of your state’s securities regulator, you can visit the North American Securities Administrators Association, under the “Contact Your Regulator” page located here.
Moreover, you can also check to verify that your broker is registered in the Central Registration Depository (CRD), operated by the Financial Industry Regulatory Authority, or FIRA. This is the database that holds the information of every broker-dealer firm and its associated employees. Here, you’ll find information on your broker’s background, qualifications, employment history, and disclosures. You can run a quick web search to find your firm here.
Wrapping Up
Finding a broker you can trust might not come easily. Yet, as a whole, these are professionals trained to look out for your best interests and handle your money in the smartest, most ethical way possible. This first step of interviewing and talking to candidates is one that too many people often skip, yet it is essential and cannot be overlooked.
Once you settle on a broker, understand that the journey does not stop there. Rather, it will take continued conversation and open communication to make sure everyone is on the same page and all needs are being met. So, find one you can talk to openly, trust to handle your finances, and who passes all of the requirements on your checklist, however long that might be.
