Keeping Your Stock Broker On The Straight And Narrow

by Alan Lavine and Gail Liberman

If you truly need help with your investments, it could pay to hire a full-service broker. Brokers often provide high quality research on companies. Plus, they can help with tax and estate planning issues, Before you sign with a broker, though, it is a good idea to first visit the broker's office and meet with the office manager.

That way you can get a feel for the quality of service the company will provide.

Also check the website of the National Association of Securities Dealers at www.nasdr.org. You can find out there if there have been any actions or complaints against the broker or brokerage firm you are considering.

Be skeptical about all hot tips. It's better to have a broker who helps you figure out your investment goals. The broker should inquire about how much risk you're willing to handle. Tell the broker what you do and don't want him or her to do with your money.

Be sure to review your customer agreement very closely. Check the commission rates and transaction notification policies. Think twice about giving the broker the power of attorney to make trades for you. This gives him or her the right to trade your account and rack up commissions. Usually, it's better to have the broker call for your approval to make trades.

Once you get your account up and running, keep good records. Keep a log book with time and date of your call, and write down what was said every time you talk with your broker. If the broker recommended some stocks or bonds, note in your log book whether he or she informed you of all the risks involved.

Be skeptical about new recommendations. Does the investment fit in with your goals? How risky is it? What can you expect to earn? What is the term? Ask if the brokerage firm is underwriting the investment. If so, be careful. It may be trying to unload it on you for its own profit. Ask how much research the broker did. Also, check into fees or penalties if you withdraw your money.

What happens if there is a problem? The greatest issues between brokers and clients are transaction mistakes. So be sure you get a written confirmation of your trades or your instructions to your broker. If you deal on the phone, jot down the first and last name of the broker to which you spoke as well as the date, time and information on what was traded. If an unauthorized trade was made, never keep the profits. It could hurt your case if you wind up filing a complaint with regulators.

What do you do if your broker is cheating you? 

Today, most brokerage account agreements don't let you sue in a court of law. You have to go to binding out-of-court arbitration. The National Association of Securities Dealers has a nationwide arbitration system. You also can select an arbitration panel of the New York and American Stock Exchanges as well as the American Arbitration Association. Under NASD arbitration, a panel hears the case and makes a collective ruling. It could take a few days to issue a verdict. 

So if you have a problem with unauthorized trades, broker trading mistakes, or if you think the broker is churning your account to rack up big commissions, keep good records and round them up. Talk to your attorney and call the NASD for an arbitration kit (800-334-0668). If the issue concerns a substantial sum of money, consider having your attorney represent you at the arbitration hearing.

You can find an attorney and obtain information on his or her background at www.abanet.org.

Alan Lavine and Gail Liberman are husband-wife personal finance columnists, journalists and authors. They are the authors of "The Complete Idiot's Guide to Making Money with Mutual Funds," published by Alpha Books. Their columns appear in newspapers throughout New England and the Southeast, as well as online. Their commentary on mutual funds and personal finance is carried by 200 radio stations nationwide every Sunday over Business News Network's Charles DeRose Financial Advisor Show.

More articles by Al and Gail can be found here.