Educate Yourself and Pay Attention As an Investor, and You'll Be That Much Harder to Fool
In the many dozens of securities litigation cases we have worked on for investors, we have noticed that, when it comes to protecting yourself against broker misconduct and financial fraud, there several "golden rules" which, if regularly observed, would prevent the vast majority of abuses in the securities industry.
We have narrowed our set of rules down to three. These may seem as obvious as your doctor's advice to eat healthy, sleep well, and exercise, and the truth is - they are. The problem is not that the rules are complex or counterintuitive. Rather, it's that we simply do not practice them. So while we are putting these out there again to remind you of the best practices for your own financial self-defense, the key word in that sentence is "practice" - in order to reap the benefits of these rules, you must put them into action. Your bank account will thank you for it one day.
Do a Background Check on Your Stock Broker
This could be the single most important yet overlooked rule of them all. One of the hurdles to making the observance of this rule more widespread among investors is that, we have found, many investors do not know that they can do a background check on their stock broker - and that is super easy.
FINRA, the regulatory body that governs the financial industry, has created an online database called BrokerCheck which investors can use to search for a broker's professional history. This history includes any terminations, disputes, and customer complaints. It also shows you if the broker is registered - and he or she better be. Go to BrokerCheck first before signing any opening account documents.
Review Your Monthly Statements
We know, we know. Nobody wants to sift through the dozens or even hundreds of pages of account statements and other paperwork that come your way every month from your broker-dealer. But trust us - it's critical that you at least glance over the financial statements to review the health of your account and to take a look at the nature and volume of any account activity. Plus, if you ever do file a dispute against your broker, the arbitration panel will hold you responsible for reviewing those statements, which will affect the settlement value of your case.
Meet Regularly with Your Broker and Ask Questions, Even Stupid Ones
Most investors we have talked to only meeting with their broker on an annual basis, if that. The more often you can meet with your broker and discuss your investment portfolio, the better. Think about it. Who is a predatory broker more likely to target - the investor who never calls or visits with him or her, or the one who is in his office reviewing accounts every quarter or so?
Another reason to visit with or at least speak to your broker on a regular basis is trust. Have you ever gotten the sense that someone was up to something but you couldn't put your finger on it? It's hard to sense this when you're not speaking with or sitting across from another person. Their body language often gives them away. Meeting with your broker regularly gives you a chance to face the man or woman who manages your life-savings - you better be comfortable that you can trust that person.