Choose Your Broker Carefully
Lean everything you can about your broker and the investment firm before opening an account. Every broker and investment firm is required to join the National Association of Securities Dealers (NASD), which puts online information about every broker and firm at its website.
Meet face to face with your stockbroker. Ask tough questions about his or her background, education, training, and how long the broker expects to handle your account. If the broker changes positions every two years and it's been eighteen months since the last transfer, look for someone else.
Educate your broker. To give sound advice, the broker needs to know everything about your finances and life goals. That is a lot of personal information. Expect the broker to ask for it upfront, usually with a long questionnaire. If the broker doesn't, leave.
Be Skeptical Invest with the understanding that risk is unavoidable. The surest advice is, If it looks too good to be true, it probably is. If your broker tells you about such a deal, you probably have made a bad choice. Although most people in the securities business are intelligent, hard working, and honest, always be on the lookout for something that is not right, and have the common sense to walk away. (There is nothing more foolish then trying to make a bad deal look good.)
Never deal with telemarketers. Typically, they are inexperienced, desperate people making blind calls hoping to generate business. When they call, hang up.
Seek a nearby firm. Today, investment firms are ubiquitous. Select one that is conveniently located.
The industry has a special designation, called Certified Financial Planner (CFP), for brokers with extensive training and experience. It is very difficult designation to obtain, and few stockbrokers have earned it. It is a good sign that the person knows the business.
Resist pressure. Look for a broker in whom you will have confidence. It the broker tries to fast talk you into anything, leave.
Find a broker happy to handle your account. Ask whether your account is large enough and of the kind the broker would be challenged to handle. If your business doesn't interest the broker, find one who is.
Decide on the type of account that will suit you. The distinction between discretionary accounts and nondiscretionary accounts is discussed above under churning. In all likelihood, a nondiscretionary account, which requires your approval for all transactions, is best for you.
Demand the reasons behind the broker's recommendations. Never buy a pig in a poke. If the broker can't explain why a particular transaction is best for you, leave.