Selecting Your Broker
Before you make a securities investment, you must decide which
brokerage firm– also referred to as a broker/dealer – and
sales representative– also referred to as a stock broker/account
executive, or registered representative– to use. Before making these
decisions you should:
- Think through your financial objectives and prepare a personal
- Talk with potential salespeople at several firms. If possible,
meet them face to face at their offices. Ask each sales representative
about his or her investment experience, professional background, and
- Find out about the disciplinary history of any brokerage firm and
sales representative by calling 1-800-289-9999, a toll-free hot line
operated by the National Association of Securities Dealers, Inc. (NASD).
The NASD will provide information on disciplinary actions taken by
securities regulators and criminal authorities. State securities
regulators also can tell you if a sales representative is licensed to do
business in your state.
- Understand how the sales representative is paid; ask for a copy of
the firm's commission schedule. Firms generally pay sales staff based on
the amount of money invested by a customer and the number of transactions
done in a customer's account. More compensation may be paid to a sales
representative for selling a firm's own investment products. Ask what fees
or charges you will be required to pay when opening, maintaining and
closing an account.
- Determine whether you need the services of a full service or a
discount firm. A full service firm typically provides execution services,
recommendations. Investment advice, and research support. A discount
broker generally provides execution services and does not make
recommendations regarding which securities you should buy or sell. The
charges you pay may differ depending upon what services are provided by
- Ask if the brokerage firm is a member of the Securities Investor
Protection Corporation (SIPC). SIPC provides limited customer protection
if a brokerage firm becomes insolvent. Ask if the firm has other insurance
that provides coverage beyond the SIPC limits. SIPC does not insure against
losses attributable to a decline in the market value of your securities.
For further information, contact SIPC at 805 Fifteenth Street, N.W., Suite
800, Washington, D.C. 20005-2207; or call (202) 371-8300.
Remember, part of making the right investment decision is finding the
brokerage firm and the sales representative that best meet your personal
financial needs. Do not rush. Do the necessary background investigation on
both the firm and the sales representative. Resist salespeople who urge you
to immediately open an account with them.