Securities Division - Investor Education
to Choose a Stockbroker
how much and what type of service you want from your brokerage firm and
A full-service firm will offer investment advice, make recommendations,
and offer research support. A discount broker doesn't make recommendations
about buying or selling a specific security.
your brokerage firm and stockbroker.
Stockbrokers must be licensed through the National Association of Securities
Dealers (NASD), and registered with each state in which they regularly
Call us to verify the firm's and the stockbroker's registration and to
check disciplinary history. You may also contact the NASD hotline at (800)
289 9999 for information on firms and their stockbrokers.
Ask for and check references from several clients. Ask these clients how
much better off they are as a result of the services of the stockbroker.
Don't make a decision about a brokerage firm or stockbroker based solely
on a telephone solicitation, advertisement, or seminar.
about fees and commissions.
Most brokers earn commissions when they buy and sell investments on behalf
of their clients. Make sure you understand these costs before opening
Many brokerage firms charge ongoing fees related to the maintenance of
your account. Make sure you understand these fees and how they are charged
to your account.
your investment needs and objectives, e.g., short term profits, long term
growth, steady income, tax savings.
Make your goals clear to your broker, preferably in writing.
Your investment goals should be accurately reflected on your new account
form. Check the form and get a copy for your records.
If your investment goals change, be sure that your broker's records and
your records accurately reflect your revised objectives.
your tolerance for risk.
Your new account form requires that you specify the level of risk you
are willing to take to achieve your financial objectives. If you don't
understand some of the categories in the form, ask your broker to explain
what each category means. Make sure you fully understand how much risk
is involved in each category.
Remember a basic investment rule: the higher the possible rate of return,
the greater the risk. If you are promised spectacular returns, be skeptical
and ask questions.
sure you understand the type of account you want to open before you sign
any customer agreement.
If you open a discretionary account, you allow your broker to make investment
decisions without consulting you about each transaction. Your broker will
not obtain your authorization about the price or type of security or when
to buy or sell, but will buy and sell securities based on a determination
of what will best meet your investment objectives.
If you open a margin account, you may borrow money from the brokerage
firm to buy securities. You are required to pay interest on that loan
and the securities in your account are collateral for that loan. If you
buy securities on margin, you are liable for the outstanding balance of
the loan regardless of the value of the securities purchased. If the securities
in your account fall in value, you may receive a margin call that requires
you to add funds to your account, or risk the sale of your securities.
sure you can understand account statements and confirmation slips.
Understanding your account statements and confirmation slips is key to
controlling your investments. Check the statements over carefully as soon
as you receive them. Familiarize yourself with the format, terms and codes
used by your brokerage firm.
If you ever find information in your account statement or confirmation
slip that you do not understand, contact your broker immediately and get
a satisfactory explanation.
we're here to help!