Rules Your Broker Must Follow

While the vast majority of investment professionals are never accused of fraud or abuse, there are investment professionals who engage in misconduct. Here are some major considerations to be aware of when reviewing the transactions you have with your investment professional.

Brokers must follow what is called the “know your customer” rule. It requires them to make certain that the investments they recommend to you “match” your financial goals and the amount of risk appropriate for you. These are set forth when you fill out your “New Account Form”. Your broker cannot recommend an investment that is unsuitable for you.
Brokers are required by law to get your permission prior to trading in your account. Unless you've given them discretion over your account, trades carried out without your permission are unauthorized. Unauthorized trading is illegal and should not be tolerated.
Your broker is obligated to be truthful – and complete – in presenting investment opportunities to you. An example of what regulators refer to as a misrepresentation is if your broker tells you that investing in a new issue of stock is as “safe as a CD.”
The vast majority of investment professionals earn commissions when they buy and sell investments on behalf of their clients. If your broker trades excessively in your account for personal benefit, rather than for you and your account, you could have a valid claim against that broker for churning.
Although rare, the most potentially devastating situation an investor can experience is actual theft by a broker or financial professional.

If you feel uncomfortable with your brokerage house or investment professional, or have reason to feel that you're being pressured in any way, don’t feel guilty about switching your account to another representative or firm. Remember, it is your financial future that's at stake – not theirs.

Source: Washington State Department of Financial Institutions

Menu

Popular Information

Rules Your Broker Must Follow