Rules Your Broker Must Follow
While the vast majority of investment professionals are never
fraud or abuse, there are investment professionals who engage in misconduct.
Here are some major considerations to be aware of when reviewing the
transactions you have with your investment professional.
- Brokers must follow what is
called the “know your customer” rule. It requires them to make certain that the
investments they recommend to you “match” your financial goals and the amount of
risk appropriate for you. These are set forth when you fill out your “New
Account Form”. Your broker cannot recommend an investment that is unsuitable
- Brokers are required by law to
get your permission prior to trading in your account. Unless you've
given them discretion over your account, trades carried out without your
permission are unauthorized. Unauthorized trading is illegal and should
not be tolerated
- Your broker is obligated to be
truthful – and complete – in presenting investment opportunities to you. An
example of what regulators refer to as a misrepresentation is if your
broker tells you that investing in a new issue of stock is as “safe as a CD.”
- The vast majority of investment
professionals earn commissions when they buy and sell investments on behalf of
their clients. If your broker trades excessively in your account for personal
benefit, rather than for you and your account, you could have a valid claim
against that broker for churning.
- Although rare, the most potentially devastating situation an investor can
experience is actual theft
by a broker or financial professional.
If you feel uncomfortable with your brokerage house or investment professional,
or have reason to feel that you're being pressured in any way, don’t feel guilty
about switching your account to another representative or firm.
Remember, it is your financial future that's at stake – not theirs.
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