There are plenty of people who slave and work themselves like a locomotive to accrue savings that they can invest in stocks. They think that it’s their passport to wealth. So, with high hopes of a sizeable return of investments, they call a broker. In theory, a securities broker “is the mediating party between a buyer and a seller in a business transaction on the stock exchange. He or she brings together the investment opportunities and the investor.” Pay important attention to this next segment, “securities brokers provide the client with pertinent facts that would help them on their investment decisions.” But in reality, over the past few years investors have lost a total of 5.5 trillion cumulatively. With this kind of figure, most investors must start to question the standards upon which brokers execute their profession.
The truth is that many have been swindled in the world of stocks. Most people assume that because they’re entrusting a large amount of money their best interests will be taken to heart. Brokers are around money all the time, and what that does to people is make them greedy. Brokers work on a commission-per-sale basis. What happens is, they prioritize a bigger commission for large investments that may not actually work for the investor in the long term. This practice in the brokerage industry has given rise to the need of investors’ protection from bad business. Hence, we give you our 3 tips to protect yourself from greedy brokers:
1. Word of the day: fiduciary
Whenever you avail of a brokerage firm’s assistance, ask them what standard they operate under. There are two standards you should be familiar with. Most brokers work under the “suitability” standard which means that they sell investments that they think are “suitable” for the investor. Suitable, does not necessarily mean the best. Sometimes it means suitable for the client, best commission for the broker. On the other hand, a fiduciary standard requires, by law, that the financial advisors put the interests of the clients above their own. To know whether the brokerage firm operates under the fiduciary standard, ask them if they have a “Series 65” license.
2. Advisor or broker
There has been an on-going debate on who can best look after your money – a broker or adviser? In conjunction with the tip prior, we advised that you should look for professionals governed by the “fiduciary standard.” It is less risky to hire the services of an advisor than a broker because all registered advisors are bound by the fiduciary standard. To elaborate further, the fiduciary standard according to NYtimes.com is “a fiduciary responsibility is an ethical and legal requirement that the investor’s best interest comes first, not the adviser’s own financial gain.” Since it is a legal agreement, advisors who have failed to serve the best interests of their clients are punishable by law.
3. Successful investments require your due diligence
Whether or not you choose an advisor or a broker, what really helps is research. Dishonest professionals prey upon unsuspecting victims – those who have no working knowledge of what they’re about to dive into. If you plan on investing your money in stocks, learn their language. If you are too innocent in these matters you increase the risk of you becoming a prey. Yes, we do hire brokers and advisors because of their knowledge about the stock market, but you must also learn to help yourself make educated decisions.
Because of recent the roller coaster ride of the stock markets, it’s good that more and more people are keeping a stingy eye on Wall Street practices. The economy makes it hard to track progress for the stock markets, but don’t make money susceptible by being careless on choosing financial advice.
Kristen Francis Willis is a Financial Consultant by Profession. From time to time, she does some side business with her photography skills. She loves taking pictures, capturing every moment means a lot to her. She’s currently building her reputation as an online writer with the help of PFMP.