I started investing in the markets in the early 1990s. Before I started investing, I taught myself some basics about investing including the language, definitions and how to read stock charts. After I left my first job and transferred my 401K to a large investment house, I was well in control and knowledgeable of how to invest and where I wanted my money to go. I even picked my own stocks and mutual funds. In addition, I was lucky because my broker was one of my former students. But if you are not this fortunate, here are a few questions to ask your prospective or current broker.
How does the broker get paid? There are commissions, and then there are commissions. It is illegal for brokerage firms to offer special incentives for their brokers to sell their own brand of funds. Sometimes they try to get away with this under the guise of “ticket fees” charged on other companies’ funds. These are the companies that normally take brokers out to dinner or to an expensive golf course every now and then.
What investment training has the broker had? You want to know that he or she has had some formal training. The number of years of experience in the industry is also good to know. This is important because a lot of times you will find that they have had no formal training and only have experience in sales. This is a no-no.
What is the standard deviation of my portfolio? As a man fond of numbers and one who teaches statistics, this is very important to me. The standard deviation gives one a measure of the volatility of your portfolio. Each individual is different, but conservative investors like to see a range from 7 to 10 percent, while for aggressive investors, a range of 18 to 20 percent is acceptable. If they cannot tell you or have to go and check with somebody, it would be wise to find a new broker.
Is the broker’s record clean? You don’t have to ask this question, you can check his or her record on your own since the National Association of Securities Dealers (NASD), allows you to check the record of a brokerage firm or an individual broker for past indiscretions.
Does the broker receive extra commissions for selling house products? It is not unusual for many brokers to push the stocks or funds of their clients over your personal investment well being. So, it is essential for you to ask for any information regarding the performance history of any product that he is trying to get you to purchase.
There are many other questions that can be asked ranging from asset allocation to basic access to your broker. In any case, these basic questions should get you on the right path for interacting competently with your broker. –torrance stephens, ph.d.
