Several stock investors assume that their stock brokers are fiduciaries that want the best for their clients at all times. While this is true for some, it isn’t the same for everybody. The primary duty of a stockbroker is to use your investment to earn more money. Unfortunately, this isn’t always the case, as brokers sometimes put their interests before that of their clients. As a result, they violate the trust between themselves and their clients and create an avenue for investment fraud.
To avoid being a victim of broker fraud, do your best to ensure that the stockbroker you want to invest with is trustworthy. The following are easy and practical ways you can use to ascertain this:
Confirm Their Membership In SIPC/CIPF
The first thing to do is to ensure that the stock broker is a member of the investor protection organization. In the United States, this is the Security Investor Protection Corporation, or SIPC. This organization will ensure that your investment account is protected should your stock broker go out of business. However, they do not protect investors from losing the money they’ve invested.
Scrutinize Their Requests and Behaviour
Pay attention to your stock broker’s requests and behaviour. Examples include a request for you to write a check to an individual rather than the firm, or suggestions that you make transactions that are off-the-books. Things like these only suggest that the broker has something up their sleeves. Don’t fall for such gimmicks. When working with a broker, always trust your gut, observe their actions, and determine whether or not they engage in any suspicious schemes.
Examine Your Monthly Statements
Request and carefully examine your monthly statements, no matter what transpired during the month. Devote your time to perusing each charge and fee on the document. Contact your broker and ask for clarification on any detail you don’t understand, regardless of how small the amount seems.
Request a Meeting
Before you hire an investment broker, request for a meeting either in-person, via video chat or over the phone and have a half-hour discussion with them at least. During your meeting, ask questions and gain clarification on what they plan for your investment portfolio. Take heed of whether they delay setting up a meeting, avoid specific topics in the discussion, or provide inadequate responses to your questions. If this is the case, your stock broker might not be trustworthy, and should be cut loose in favour of another.
Endnote
Stock broker fraud is not something you want to be a victim of, especially given the current economic climate. As a self-employed investor looking to further invest in the stock market, it is essential that you take the necessary steps to protect yourself. Before choosing a broker, confirm their membership in SIPC/CIPF, scrutinize their requests and behavior, and examine your monthly statements. Also, request a one-on-one meeting. With the above insightful tips, you can safeguard your investments and ensure that your broker is trustworthy.
