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5 Things Your Broker or Financial Adviser Isn't Telling You


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I spent nearly 15 years in financial services, with close to half of that time in online brokerage. During that time, I spoke with everyone from retail investors to CEOs dealing with the Great Recession in 2007 and 2008.

My biggest takeaway was how many people are financially unprepared. I expected a lack of financial literacy and a lack of funds. I didn't expect the subtly predatory practices by some brokers and advisers. This isn't an indictment on the industry (there are some great advisers out there who put their clients' needs first), but rather some background before I let you know the five most important things your broker isn't telling you.

1. They're There to Sell to You

This really shouldn't be much of a shocker, but sadly, it is. Many brokers exist to do one thing -- sell to you. Whether they're the person answering the phone when you call your online broker or someone higher up the food chain, they're compensated to sell to you. This isn't necessarily bad, but it can cause a conflict of interest or put you in a product that doesn't fit your needs.

That said, good advisers or brokers can put you in investments that can be worth their weight in gold. But you'll have to wade through a lot of murky characters -- who viewed investors as numbers and not value them as relationships -- to get to the good ones.

2. They Don't Know What's Going to Happen Next in the Market

I was often asked what I thought was going to happen in the stock market. It's an understandable question, especially over the past few years. The market has derailed many investing plans.

Yet you want to run very fast from advisers or brokers who tell you they know what's going to happen in the market. That goes back to one very important fact -- it's largely speculation. You want someone to take the long-term view.

3. They're Not as Educated as You Think They Are

It's easy to believe that brokers or advisers all have advanced degrees or special licenses. Unfortunately, that is not the case. In many cases, brokers only have to pass a test or two to sell securities or advise you. Often they have no previous experience in the industry and are in their role because they're good at sales.

This doesn't apply to all brokers. There are a number of certifications a good adviser can get, including certified financial planner, chartered financial analyst or chartered financial consultant, all of which require extensive work.

4. You're Paying Too Much for Your Investing

Most major online brokers only charge $2 to $3 per trade; if you're paying a lot more, that's just more profit for your broker. Price shouldn't be the lone factor when choosing an online broker, but it should be kept prominently in mind.

Outside of online brokerages, it's not uncommon for brokers to charge upwards of several hundred dollars to execute trades. There's simply no need to pay that much, and over years these kind of fees can put a major dent in your portfolio.

5. They're Not Keeping Track of Your Records

Among the worst problems I saw repeatedly involved people who needed specific information about investments they'd made many years prior, who discovered they were unable to get it. These investors made one fundamental error: They believed their broker would have the information.

The SEC requires brokers to keep statements on file for at least six years and trade confirmations for at least three years. This might seem like enough time, but I spoke with investors on a weekly basis who needed something older than six years and were left scrambling because their broker didn't have the records they needed. And these matters are even worse when the information is needed for tax purposes, and you have no way to prove what price you bought a certain stock for.

Don't Fall Asleep on Your Investing

Brokers and advisers can be a great asset. Hiring one, however, doesn't release you from responsibility -- rather it means you have more of it. When choosing a broker or an adviser, find one that's right for you and check regularly on your portfolio. You can use resources like the FINRA Broker Check to see potential advisers' employment history and any disputes or regulatory matters against them.

You can use the same tool to check on online brokers. When deciding on a brokerage, get as much information as possible. Your stress level and your portfolio will thank you.

John Schmoll is the founder of Frugal Rules, a finance blog that regularly discusses investing, budgeting, and frugal living. He is a father, husband, and veteran of the financial services industry who's passionate about helping people find freedom through frugality. He also writes about wise ways to manage your money at WiseDollar.org.


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