Investigate Before You Invest

Selecting a Financial Professional

Eight Steps you should take before you select a broker

1. Make a plan. Think through your financial objectives. Before discussing your financial goals with a broker, you need to fully evaluate your personal finances and decide how much you want to invest, how much return you need, and how much risk you are willing to take to achieve your goals.

2. Get references. Ask friends, relatives, and co-workers for the names of brokers who served them well for a year or more.

3. With your plan in hand, meet with each broker who sounds as if he or she might be right for you. Talk with prospective brokers about what you want and assess their responsiveness to your needs. Ask about their experience and education. Ask for customer references by name and telephone number, contact each reference and ask about the broker's performance, his or her responsiveness to their needs and how long they have been a client.

Be wary of brokers who attempt to sell you a product regardless of its
appropriateness. Attempts to sell you a product during this initial interview are not allowed. The interview should be free if the person is paid on commission. If the broker provides a fee-only service, the meeting might be free or the broker should tell you the fee before you meet.

4. Contact each reference and ask about the broker's performance.

5. Ask brokers about fees and commissions, which should be clearly stated. Take notes. Most brokers or investment salespeople receive a commission basted on the size of your investment. Investment adviser representatives receive a fee based on a percentage of the money under management.

6. Decide whether you'll use a full-service or discount brokerage. Determine how much service you want from your brokerage firm. A full-service firth will offer investment advice, make recommendations, and provide research support. A discount broker does not make recommendations about buying or selling a specific security.

7. State your net worth honestly. Be realistic in stating your net worth and the cash you have available to invest. Do not exaggerate your net worth to impress the broker. The broker is required to make investment recommendations based on your investment objectives and your net worth, among other factors. He or she cannot make appropriate recommendations if you are not completely honest.

8. Do your homework. If you like one of the brokers you've met, call the FINRA, (800) 289-9999, to get his or her Central Registry Deposit (CRD) number, which is the broker's license number. This number is linked to the broker's employment and disciplinary history.

Ask for the following information:
Final disciplinary actions and criminal convictions involving firms, brokers, and individuals registered with the FINRA;

  • Civil judgments involving securities matters;
  • Formal disciplinary proceedings that are pending before the Securities Exchange Commission (SEC), the FINRA, other self-regulatory organizations and states;
  • Criminal indictments reported by the securities industry and the U.S. Department of Justice; and
  • Pending or final FINRA proceedings.

The Central Registration Depository (CRD)
The CRD is a data bank containing information about the employment,
qualifications, and disciplinary history of the industry's 5,500 member
broker/dealers firms, and 600,000 active registered representatives. When a firm or individual is sanctioned by any state or regulatory organization, that information is added to the CRD data bank.

Next, make sure the salesperson is registered licensed to sell securities in New York. Contact the Attorney General's Bureau of Investment Protection, 212-416- 8214 or 416-8222. If an individual is not registered, ask the salesperson about his or her status and, of course, verify the information.
If you are interviewing an Investment Adviser, ask about:

  • Their education
  • Their experience/background
  • Certification(s)
  • How they are compensated
  • Their business philosophy
  • Their references
  • Select an Investment Adviser
    FOIL Form
    What you Should Know About Financial Advisors.
  • Check out the Person or Business with Whom You are Considering Investing
    FOIL Form