How to Find a Good Bond Broker

Finding a Bond Broker

Corporate bonds are sold so companies and institutions, both public and private, can get cash to invest. If all goes well, the bond seller will repay the amount you paid for it, plus interest. If chosen wisely, these bonds will diversify your investment portfolio and help you make money. But the world of corporate bonds can be bewildering, especially to newcomers. Working with a bond broker is a good way to find the best deals.

Things You'll Need

• Computer with Internet connection
• E-mail account
• Paper
• Pen
• Telephone

Instructions

1. Go to www.finra.org/brokercheck. FINRA, or the Financial Industry Regulatory Authority, will email you a background report on each broker you request. FINRA has access to information on more than 800,000 brokers through the Central Registration Depository (CRD), which is a database to which brokers must send personal data in order to secure professional licenses. (You can also call FINRA at 800-289-9999.) As you examine this website, begin compiling a short list of brokers who have good ethical histories. All of the brokers on your list must be licensed and must be in good financial shape. If you lose money because you invest with a broker who is not licensed--or a broker that goes broke--you may have little recourse to recoup your losses.

2. Log on to www.adviserinfo.sec.gov. This is the website set up by the U.S. Securities and Exchange Commission. If you are not looking to invest much money, seek out investors who have a low percentage of clients who are "high-net-worth investors." These are people who have $1.5 million or more in total assets. Bond brokers who are used to dealing with such investors might not have the time or the expertise to deal with clients looking to invest only small sums of money. As you peruse the Adviser Info site, add suitable brokers to your list, and remove from your list any brokers whose clients includes at least 20 percent of high-net-worth investors.

3. Go to http://www.nfa.futures.org/basicnet/. This is the Background Affiliation Status Information Center (BASIC), run by the National Futures Association. On BASIC, you can search for registered brokers by firm or by name and view a complete list of any regulatory actions taken against them. You can discover what the ethical or legal complaints, who made those complaints, and the results of any legal actions.

4. Interview some bond brokers on your list by phone or, if possible, in person. Specific questions to ask include the following: How much do you charge? Will you earn commissions on the bonds I buy? Where did you go to school? Where have you worked in the past? Are you registered with the SEC or with FINRA? If not, why not? What kind of assistance and services would you provide to someone who is looking to invest in bonds?

5. Hire one of the bond brokers with whom you have spoken. Make sure the winning candidate offers a reasonable price, is honest and forthright, and demonstrates the necessary educational, professional and ethical history you expect.

References

• FINRA (Financial Industry Regulatory Authority): "FINRA Broker Check"
• Securities and Exchange Commission: "Investment Adviser Public Disclosure"
• National Futures Association