Before You Invest

How to Avoid Problems With Your Broker (FINRA):

The following advice from FINRA may help you avoid future problems-

  1. Thoroughly read and retain your monthly account statements, confirmations and any other information you receive about your investment transactions.
  2. Immediately question any transaction or entry that you do not understand or did not authorize with your broker. If you are not satisfied with your broker’s response, consult with the firm’s branch manager or compliance department.
  3. Beware of sales pitches that make exaggerated claims about the expected profitability of a particular investment, or make specific price predictions, such as, “your money will double in six months,” especially if dealing with a broker who is new to you. If it sounds too good to be true, it usually is.
  4. Beware of any broker who pressures you to invest quickly to avoid missing out on a “once in a lifetime opportunity.” Investment decisions should be made only after deliberation and thought, and with the benefit of all the relevant facts—take the time to learn them. Be suspicious of any broker who uses high-pressure sales tactics.
  5. Never send money to a firm or broker that you are hearing from for the first time simply based on a telephone sales pitch.
  6. When investing for income and yield, whether in stocks, bonds, mutual funds, etc., make certain that you understand fully the nature of the security in which you are investing – there normally are varying market and price risks associated with each type of security.
  7. Investing in lower-priced, so-called “penny stocks” is inherently risky and should be done only after a thorough investigation is made of the company and of the market for its shares. Generally, you should not engage in such speculation unless prepared to accept the risk of losing your entire investment.
  8. Investing your money is a major decision, similar to the purchase of a house or an automobile. Investigate thoroughly any potential investment before you make it, as well as the broker and securities firm that are recommending it to you. To do so, you should:
  • Request a prospectus, annual report and/or research information, and read them carefully. Discuss the potential risks, rewards and consequences with your broker, certified public accountant or independent adviser before taking any action.
  • Contact FINRA BrokerCheck’s toll-free number at (800) 289-9999, or visit FINRA BrokerCheck, to learn whether the broker is currently registered with FINRA and whether he or she has been the subject of:
  1. Consumer-initiated pending arbitrations or civil proceedings involving investment activity;
  2. written customer complaints alleging sales practice violations and compensatory damages of $5,000 or more;
  3. settlements of $10,000 (or $15,000 after 5/18/09) or more of arbitrations, civil suits and customer complaints involving investment-related activity;
  4. consumer-initiated arbitrations or civil proceedings that involved an award, regardless of the amount, to the customer;
  5. written customer complaints alleging forgery, theft, misappropriation or conversion of bonds or securities; or,
  6. any final sanction (including a bar, suspension or fine imposed by FINRA, the Securities and Exchange Commission or other federal or state regulatory agency).
  • Become better informed about investing by attending classes, seminars or checking the business reference section of your public library.

 

Prohibited Conduct (FINRA):

You should be aware that certain types of conduct in the securities industry are prohibited, including the following:

  1. Recommending to a customer the purchase or sale of a security that is unsuitable given the customer’s age, financial situation, investment objective, and investment experience. Investment in a particular type of security may be unsuitable or the amount or frequency of transactions may be excessive and therefore unsuitable for a given customer.
  2. Purchasing or selling securities in a customer’s account without first contacting the customer and the customer did not specifically authorize the sale or purchase, unless the broker has received from the customer written discretionary authority to effect transactions in the account or the broker was given discretion as to price and time.
  3. Switching a customer from one mutual fund to another when there is no legitimate investment purpose underlying the switch.
  4. Misrepresenting or failing to disclose material facts concerning an investment. Examples of information that may be considered material and that should be accurately presented to customers include: the risks of investing in a particular security; the charges or fees involved; company financial information; and technical or analytical information, such as bond ratings.
  5. Removing funds or securities from a customer’s account without the customer’s prior authorization.
  6. Charging a customer excessive markups, markdowns, or commissions on the purchase or sale of securities.
  7. Guaranteeing customers that they will not lose money on a particular securities transaction, making specific price predictions, or agreeing to share in any losses in the customer’s account.
  8. Private securities transactions between a broker and a customer that may violate FINRA rules, particularly where such transactions are done without the knowledge and permission of the sales representative’s firm.
  9. Trading for a firm’s account in preference to a customer by trading ahead of a customer limit order, absent a valid exception.
  10. Failure by a market maker to display a customer limit order in its published quotes, absent a valid exception.
  11. Failing to use reasonable diligence to see that a customer’s order is executed at the best possible price, given prevailing market conditions.
  12. Purchasing or selling a security while in possession of material, non-public information regarding an issuer.
  13. Using any manipulative, deceptive, or other fraudulent device or contrivance to effect any transaction in, or induce the purchase or sale of, any security.


Suggested sites to research before you invest:

BrokerCheck: BrokerCheck is a free tool provided by FINRA to help investors research the professional backgrounds of current and former FINRA-registered brokerage firms and brokers. It should be the first resource investors turn to when choosing whether to do business or continue to do business with a particular broker or brokerage firm.

RiskMeter: Use FINRA’s Risk Meter to see whether you share characteristics and behavior traits that have been shown to make some investors vulnerable to investment fraud.

Scam Meter: FINRA’s Scam Meter will help you tell if an investment you are thinking about might be a scam.

MarketData: A comprehensive tool provided by FINRA that is designed to assist investors with market and investment research, both through the market data information provided as well as through the FINRA Investor Education material and tools.

Tools and Calculators: A variety of interactive tools provided by FINRA that can help you plan your financial future, from getting background information about your broker to using financial calculators.

Fund Analyzer: The Fund Analyzer provided by FINRA offers information and analysis on over 18,000 mutual funds, Exchange Traded Funds (ETFs) and Exchange Traded Notes (ETNs). This tool estimates the value of the funds and impact of fees and expenses on your investment and also allows you the ability to look up applicable fees and available discounts for funds.

 

The following steps may help you avoid future problems:

 

  1. Thoroughly read and retain your monthly account statements, confirmations and any other information you receive about your investment transactions.
  2. Immediately question any transaction or entry that you do not understand or did not authorize with your broker. If you are not satisfied with your broker’s response, consult with the firm’s branch manager or compliance department.
  3. To allege improper business conduct or to make monetary claims, you should complain promptly in writing to the management of your brokerage firm’s sales office, and then directly to the firm’s compliance department. Retain a copy of your letter and of all other related correspondence with the broker/dealer. If the problem cannot be resolved through the firm, other alternatives, such as mediation or arbitration, may be appropriate. A delay in pursuing your complaint for whatever reason may lessen its credibility.
  4. Follow up if you do not receive a satisfactory response to your complaint. Failure to receive a satisfactory response may warrant your filing a written complaint with FINRA or another self-regulatory organization.
  5. Beware of sales pitches that make exaggerated claims about the expected profitability of a particular investment, or make specific price predictions, such as, “your money will double in six months,” especially if dealing with a broker who is new to you. If it sounds too good to be true, it usually is.
  6. Beware of any broker who pressures you to invest quickly to avoid missing out on a “once in a lifetime opportunity.” Investment decisions should be made only after deliberation and thought, and with the benefit of all the relevant facts—take the time to learn them. Be suspicious of any broker who uses high-pressure sales tactics.
  7. Never send money to a firm or broker that you are hearing from for the first time simply based on a telephone sales pitch.
  8. When investing for income and yield, whether in stocks, bonds, mutual funds, etc., make certain that you understand fully the nature of the security in which you are investing – there normally are varying market and price risks associated with each type of security.
  9. Investing in lower-priced, so-called “penny stocks” is inherently risky and should be done only after a thorough investigation is made of the company and of the market for its shares. Generally, you should not engage in such speculation unless prepared to accept the risk of losing your entire investment.
  10. Investing your money is a major decision, similar to the purchase of a house or an automobile. Investigate thoroughly any potential investment before you make it, as well as the broker and securities firm that are recommending it to you. To do so, you should:

 

  • Request a prospectus, annual report and/or research information, and read them carefully. Discuss the potential risks, rewards and consequences with your broker, certified public accountant or independent adviser before taking any action.
  • Contact FINRA BrokerCheck’s toll-free number at (800) 289-9999, or visit FINRA BrokerCheck, to learn whether the broker is currently registered with FINRA and whether he or she has been the subject of:
    • consumer-initiated pending arbitrations or civil proceedings involving investment activity;
    • written customer complaints alleging sales practice violations and compensatory damages of $5,000 or more;
    • settlements of $10,000 (or $15,000 after 5/18/09) or more of arbitrations, civil suits and customer complaints involving investment-related activity;
    • consumer-initiated arbitrations or civil proceedings that involved an award, regardless of the amount, to the customer;
    • written customer complaints alleging forgery, theft, misappropriation or conversion of bonds or securities; or,
    • any final sanction (including a bar, suspension or fine imposed by FINRA, the Securities and Exchange Commission or other federal or state regulatory agency).
  • Become better informed about investing by attending classes, seminars or checking the business reference section of your public library.