Spotting Dishonest Stockbrokers
A dishonest stockbroker can do serious damage to your net worth. While the vast majority of stockbrokers are good, honorable professionals who take their fiduciary responsibility seriously, some fall more accurately into the category of “Stock Jockeys” who are only in it for their own gain. The good news is that, in the Information Age, it is much easier to spot a dishonest stockbroker.
Other People Are Reading
Instructions
-
-
1
Did you make the initial contact or did he? If you were sitting at your desk one day when your phone rang and before you knew what was happening you were discussing your finances, you've been cold called. While cold calling isn't a dead giveaway for a dishonest stockbroker, it is certainly a dead giveaway for an unsuccessful one.Truly successful stockbrokers don't have to cold call. They have enough people that want to call them. If they ever do reach out to generate business, it won't be dialing the white pages. It will be calling the referrals provided to them by their satisfied clients.Cold calling is how the vast majority of new stockbrokers build their business. If you feel charitable and want to throw a newly-graduated college kid a bone, be my guest. But don't expect miracles. If the kid were truly gifted, he'd be working on the Investment Banking side of the house and not pounding the phones.
-
2
Did he tell you that someone made him promise to call you? Stockbrokers hate making cold calls. They would much rather enjoy the instant rapport that comes with throwing out a name the prospect recognizes. The problem is that, ever since their first day in the business, they've been trained to badger clients and other prospects for the names and numbers of other people they can call.They will make this call to you under the guise that they are way too cool to deal with a schmuck like you, but your buddy John Smith would never forgive them if they didn't take pity on you for 30 seconds and offer you a chance to get in on the next stock that is greater than sliced bread.Thank them for the call and tell them you'll get back to them. Then call John Smith and find out if his stockbroker is providing him with double-digit returns. If the answer is no, politely ask John not to refer you any more and throw the stockbroker's number away.
-
-
3
Watch for churning. If your stockbroker is calling you every second day and recommending a new purchase, chances are he's doing it to generate commission.He will be very excited about each opportunity he presents to you. When you tell him you don't have any more liquid funds to invest at this time, he'll suggest you sell a lesser performing asset in your account (even if you recently bought it on his recommendation) in order to buy the new issue. This is a sure sign of churning.
-
4
Watch for unauthorized trading. If you receive a confirmation for a buy or sell order you don't remember placing, question it immediately. If it happens once, it can be dismissed as a trading error. If it happens any more than once, your stockbroker is running unauthorized trades (probably around the same time each month – his commission deadline) and you need to ditch the loser and report the incident to the firm.
-
5
Monitor your monthly account statements. You should receive a written statement every month detailing all the activity in your account over the past month, all of your current positions, and what each position was worth on the day the statement was generated. If you do not receive a statement you have a problem.
-
1
Tips & Warnings
Only do business with people you know and trust. There is no guarantee that you won't lose money, but at least you can be fairly sure you're not being ripped off.
Use common sense. If something sounds too good to be true, it certainly is.
The markets have been around a long time. Don't be pressured into doing anything right this instant. Believe me, if you miss this golden opportunity another will show up right behind it.
Before you do business with a new stockbroker, do a quick Internet check on him. Any complaints or judgments will show up and you can decide whether or not you wish to proceed. Use the link below to run a free check on his record.
