A 6-step guide to make sure your broker is legal

If you believe that the illegal activities and other hoaxes of brokers and other investment professionals are over in the last Great Recession, then you may have made costly assumptions.

Although the Ponzi liar Bernie Madoff and the “wolf of Wall Street” Jordan Belfort may be imprisoned for financial crimes, the illegal activities of brokers and others continue unabated. This is why it is important to understand the situation of brokers or investment advisors and their companies before starting business with them. You should also be aware of certain signs that financial professionals may be trying to victimize you.

Key points

  • Although for ordinary investors, investment has become safe, low-cost and efficient, there are still some brokerage fraud incidents that deceive unsuspecting or greedy investors.
  • There are several ways to check if your broker is legal. Always do your homework beforehand.
  • Check whether the company and the broker or planner have any background in disciplinary issues in the past, beware of calls, and check whether your statement has interesting business.
  • If you have any questions, you can file a complaint and seek compensation through various channels.

Examples of broker fraud

Here are just two examples of persistent problems in the industry.

The Federal Securities and Exchange Commission (SEC) filed fraud charges against a Massachusetts-based registered investment consulting company and its owners. The agency accused Family Endowment Partners and its owner Lee Dana Weiss of advising clients to make certain investments, but did not disclose that Weiss would receive half of the profits. The SEC also accused customers of urging customers to invest $40 million in securities issued by companies in which Weiss has a financial interest and Weiss receives payments.

In another case, the Financial Industry Regulatory Authority (FINRA) announced that it has permanently banned the former registered representative of Caldwell International Securities from participating in the securities industry because he accused him of multiple securities violations, including the loss of customer accounts. According to FINRA, Richard Adams conducted excessive transactions in two client accounts between July 2013 and June 2014, resulting in commissions of more than US$57,000 and at the same time causing clients to suffer more than US$37,000. loss.

You can protect yourself from doing business with unethical brokers or other financial professionals by taking the following six steps:

1. Beware of cold contact

Beware of any brokers or investment advisors voluntarily contacting you from companies you have never done business with. Contact can take the form of telephone, e-mail or letter. Don’t be attracted by invitations to investment seminars, which promise free lunches or other gifts, designed to let you relax and invest blindly. In a 2013 survey conducted by the FINRA Investor Education Foundation, 64% of respondents 40 years of age or older stated that they had been invited to participate in a “free lunch” seminar.

The SEC recommends that you be especially wary of callers who use high-pressure sales strategies, tout golden opportunities, or refuse to send written information about investments.

2. Have a conversation

Whether you are looking for a broker or a financial adviser, you need to be satisfied with the people who provide you with advice, products and services. Ask a lot of questions about the services the company provides and the experience of customers with similar needs.

Also, find out your relationship with professionals. According to the so-called trust standard, financial professionals must put the interests of their clients above their own when recommending investments. This is higher than the so-called applicability standard, in which professionals only need to make recommendations that are in the best interests of the client. While investment advisers must always follow fiduciary standards, this is not the case with broker-dealers-although you can find broker-dealers who are willing to comply with fiduciary standards. (Also take a look: Choosing a financial advisor: suitability and.Trust Standard.)

If you cannot get a direct answer, or if the person seems to be in a hurry or unwilling to provide you with complete and clear information, please go elsewhere. Don’t forget to ask about rates, fees and commissions. The registered investment adviser should also provide you with two parts of the form ADV (see section 3 of the US Securities and Exchange Commission).

3. Do some research

When researching financial professionals, the first thing worth trying is a simple web search using broker and company names. This may lead to new versions or media reports about suspected misconduct or disciplinary action, customer conversations on online forums, background information, and other detailed information. For example, typing “Lee Dana Weiss” in a search engine will bring up hundreds of thousands of results, including links to news releases about the SEC’s re-complaining about him and his company.

Then try to search directly for regulatory agencies. Financial professionals and their companies must be registered with federal and state securities regulatory agencies by law. And the registration information and the detailed information of the disciplinary actions taken against individuals or companies are open to the public. Keep in mind that these agencies sometimes have overlapping law enforcement jurisdictions and may provide similar information. Nonetheless, it is worth checking them all, as they may have different policies regarding the detailed information contained and the time the data remains available.

This is a list:

  • National Securities Regulatory Agency: The regulatory agency in your state may have information about the licensing, registration, and disciplinary actions of brokers and brokerage companies, and registered investment advisors. Also check any advice about research brokers or investment advisors provided by your state, such as investor education materials provided by the New Jersey Securities Bureau.
  • Financial Supervisory Authority: Another good source of information about brokers and their companies is the BrokerCheck website operated by FINRA, an independent non-profit organization authorized by Congress to protect investors. Some states refer visitors to FINRA to obtain broker information. But even if your state’s website has a lot of its own information, BrokerCheck is worth visiting to see if there are any other details. To conduct research over the phone, please call 800-289-9999.
  • Securities Regulatory Commission: Like many state regulatory agencies, the main source of information about registered financial advisors is the Securities and Exchange Commission’s Investment Advisor Public Disclosure (IAPD) website. There you can find the registration and report form ADV that most investment advisors and investment advisory companies need to submit to the commission or state. This table contains many detailed information about the consulting business. According to Part 2 of the form, the consultant must produce a simple English brochure that lists the consultant’s services, fee schedule, disciplinary information, conflicts of interest, and the education and business background of the key employees. The investment adviser should provide you with this manual and update it regularly. But you can also find it on the IAPD website. The SEC recommends that you never hire an investment adviser without reading the entire form.

4. Verify SIPC membership

You should also confirm that the brokerage company is a member of the Securities Investor Protection Corporation (SIPC), which is a non-profit company. Part of it is the same way the Federal Deposit Insurance Corporation (FIDC) protects bank customers. When investing, be sure to check with SIPC member companies and not with personal brokers.

5. Check your reports regularly

The worst thing you can do is to put your investment in autonomous driving. Careful inspection of your reports-whether received online or in print-can help you spot misconduct and even errors early. If your return on investment does not meet your expectations, or if there has been an unexpected change in your investment portfolio, please ask a question. Don’t accept complex guarantees that you really don’t understand. If you cannot get a direct answer, please ask to speak to someone higher. Never worry that you will appear ignorant or be seen as an annoying person.

6. When in doubt, withdraw funds and complain

If you suspect wrongdoing, please withdraw your funds from an investment advisor. Then, file a complaint with the same state, federal, and private regulatory agency that you visited when you visited the financial professional.

If you believe that there is a legal dispute between you and a broker or advisor, there are a few steps you can take. If your complaint is against a stockbroker, you need to file a dispute with the Securities and Exchange Commission (SEC) or FINRA.

Many financial professionals are members of chartered organizations (you can usually tell by the abbreviation after their name). These organizations also have standards and codes of ethics, so it is worth complaining to them. For example, if your complaint is against a registered financial planner (CFP), you can appeal to the CFP Standards Committee. If it is for the Chartered Financial Analyst (CFA), you can contact the Investment Research Association.

Contacting the Securities Commission of your state or province is another way. Each state or province has a department to handle complaints against brokers, consultants, and financial planners. If these options do not work, your final course of action is to hire a lawyer.

Bottom line

The Great Recession may be over, but the misconduct of brokers and investment advisers continues. Therefore, before handing over the funds to a financial professional, do a thorough research and then closely monitor your account. For legitimate reasons, the performance of the investment may not be as good as expected. However, if you are uncomfortable with the return or have other concerns and the consultant does not respond quickly and appropriately, please do not forcefully withdraw your money.

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