How to Choose a Stockbroker
By: Source: AARP.org Date Posted: 2005-03-20 12:08:53
If you invest through a financial planner, that planner will buy your stocks and bonds for you. But if you want to buy stocks and bonds on your own, you'll need the services of a stockbroker. Stockbrokers buy and sell shares on the Stock Exchange for their investors. In return, they earn commissions that are based on the size of your investment.
What You Should Know
Full-service or discount?
Before you choose a stockbroker, decide whether you need a full-service or discount broker.
- Full-Service Brokers. If you need some advice about which stocks and bonds to purchase, then you'll probably want to consider using a full-service broker. You will pay this broker a commission. In exchange, you will have the benefit of his or her professional advice.
- Discount Brokers. If you're willing and able to research your own investments, then a discount or deep-discount brokerage firm may suit your needs. Don't expect to get much advice from a discount broker. Most of these brokers will only take your orders to buy or sell stock and, then, carry out those orders.
Selecting a Full-Service Broker
Selecting a full-service broker is a lot like selecting a financial planner. Be sure to:
- Discuss your financial goals with the firm's branch manager.
- Talk to current clients of the broker.
- Find out how the broker will be paid.
- Ask about the broker's experience and training.
- Ask the broker about his or her investment philosophy.
- Find out what kind of reports you will receive about your money.
Background Checks
Be sure to check the background of the firm you are considering. There are several agencies that can give you important information about your broker:
- National Association of Securities Dealers (NASD). NASD has information about brokers - including disciplinary actions or customer complaints.
- Your state securities regulator. If an investment adviser manages less than $25 million in client assets, he or she must be registered with the state security agency. Don't do business with an unlicensed securities broker or firm. If the firm later goes out of business, you may not be able to recover your money, even if an arbitrator or court rules in your favor.
- Securities and Exchange Commission (SEC). Investment advisers who manage $25 million or more in client assets must register with the SEC.
- Securities Investor Protection Corporation (SIPC). Ask if the brokerage firm is a SIPC member. SIPC provides limited customer protection if a brokerage firm becomes insolvent.
In addition, check to see what credentials your broker has earned.
For More Information
National Association of Securities Dealers (NASD)
Information about brokers is available from the NASD Regulation web site. On the home page, click Broker/Adviser Information.
URL: http://www.nasdr.com
North American Securities Administrators Association (NASAA)
If an investment adviser manages less than $25 million in client assets, he or she must be registered with the state security agency. Find the telephone number of your state regulator by visiting the NASAA Web site.
URL: http://www.nasaa.org
Securities and Exchange Commission (SEC)
Investment advisers who manage $25 million or more in client assets must register with the SEC. Their Web site offers guidance about selecting and working with investment advisers.
URL: http://www.sec.gov
The SEC's index of "Online Publications for Investors" is comprehensive and includes many articles of interest to anyone seeking to invest money.
URL: http://www.sec.gov/investor/pubs.shtml
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