How to Learn About Investment Brokers

Carefully research an investment broker before you hire him.

Before working with an investment broker, do some research and find out about the broker. Knowing how long a broker has been licensed, what licenses he carries, and if he has a history of complaints are all important. You are trusting this person to invest your money, and you should know as much about him as possible.

Instructions

1. Ask the investment broker questions that you have prepared in advance. Ask the investment broker if he is an independent or captive agent. Independent brokers can represent more than one company and are able to "shop" the market for suitable investments for you. Captive agents are limited to specific product lines. Find out if the investment broker was previously or is currently licensed in other states, and if his "residential" license is in the state where you live. Ask the broker if he has any complaints on his record and what the surrounding circumstances were. Just because the broker has a complaint on his record doesn't mean you should cross him off your list. You are looking for a history of complaints, and you're checking his honesty about a situation.

2. Ask the investment broker for client references. He should be able to provide you with at least two or three people who are willing to be contacted. Also ask the investment broker if you can contact some of his former clients to see why they decided to move their business. When you speak with the references, have a list of prepared questions for them. Find out what they like and don't like about the investment broker. Ask if he has been able to produce the investment returns he promised. Nobody has a crystal ball, but a broker who promises significant gains and only produces losses for his clients isn't following through.

3. Check with your state insurance department to verify the information the investment broker gave you. Find out how long he has been licensed in your state, what licenses he carries (Life, Health, Property & Casualty, Variable Contracts), agencies with which he has an affiliation, and the companies with which he is appointed. The state also should be able to tell you if there are any complaints filed against the investment broker. If the investment broker is currently or in the past was licensed in other states, see if there are any complaints on record with those states. The state insurance department will have records of complaints related to insurance and fixed annuity products.

4. Go to the Financial Industry Regulatory Authority's (FINRA) website to verify the information that the broker furnished to you (see Resources). FINRA offers detailed explanations of the different credentials an investment broker can use to market her services and clarify any letters the investment broker uses behind her name, such as CFP, CHFC and CLU. For example, you will be able to compare the education requirements of a Certified Financial Planner (CFP) to a Certified Senior Adviser (CSA). You also can review any complaints that have been filed against the investment broker that are related to variable products, like variable annuities and other securities products. Having this information will help you make a qualified decision about an investment broker.

Tips & Warnings

• Give yourself adequate time to make a decision about which broker you hire.

• Don't be afraid to ask questions, especially if you've had problems with brokers in the past.

• Brokers might move from state to state to avoid complaints or legal action. Be very cautious if you encounter a broker who has moved multiple times in the past several years.

• If a broker doesn't tell you the truth about his record, don't hire him.

• Even a thorough investigation can yield a broker who doesn't follow through on his promises.

References

• FINRA: "How to Avoid Problems with Your Broker"

Resources

• FIRNA: "FINRA Broker Check"
• FINRA: "Investors - Understanding Professional Designations"