IS YOUR BROKER LEGIT?
Illegal activities by brokers and other firms are inevitable. But we can do something to protect ourselves from their wrongdoings.
Be cautious of unsolicited contacts. Many firms believe cold calling is a legitimate way to reach prospective clients. Expect unwanted calls from them unless you enlist your number to the "National Do Not Call Registry" formed by the Federal Trade Commission and the Federal Communications Commission. Nevertheless, be wary of any broker or investment advisor who suddenly calls you, or sends you an email or letter from a company you have never done business.
Beware also of suspicious callers who employ high-pressure sales tactics, pitch one-of-a-kind opportunities, tout breakthrough technologies, and refuse to send written details about the investment. Chances are they are not registered with the SEC. Do not accept invitations to attend investment seminars which promise free lunches or giveaways. They will just lure you to invest blindly.
Do your own homework. Run a background check on the broker and/or the company he represents. You can start with searching the Internet to look for any news reports of suspected fraudulent activities or disciplinary actions, background information, exchanges on online forums, and other related details. You can also try searching the concerned regulatory agencies directly to check their registration information, along with the details of disciplinary actions taken against the professional or companies.
Verify SIPC membership. A registered brokerage firm is a member of the Securities Investor Protection Corporation, a non-profit entity aiming to protect investors against the loss of cash and securities, including stocks and bonds, should a company go out of business. SIPC’s protection ceiling is $500,000, including $250,000 for cash.
Initiate a conversation. You need to be comfortable with the person who will be rendering you with advice, products, and services, whether you are looking for a broker or financial advisor. Do not hesitate to ask questions about what the company can offer, as well as its experience with clients who have similar needs to your own.
Forget not to ask about rates, fees, and commissions. Ask them also to provide you with both parts of Form ADV. If the professional or entity is pressuring you to respond right away, unwilling to provide full, precise information, or cannot give appropriate answers, walk away and find another.
Check statements regularly. Put your investments on autopilot and you will lose some or all of your money. Check your statements carefully to detect wrongdoing or discrepancies early on. Ask questions if your investment returns are not what you expected or if there are sudden changes in your portfolio. Never accept assurances or explanations you do not understand. Talk to the management if you fail to get straight answers.
Withdraw funds and complain. When in doubt, take your funds out of the investment firm. File a complaint with the right state, federal, and/or private regulators.
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