If you are looking to invest money with a brokerage firm or an individual stockbroker, it is important to do your research first. Other wise, you could end up being a victim of fraud. One of the first places you should check is the Central Registration Depository, or CRD. That is the database of brokerage and securities firms, and it allows you to make sure that the person or firm you are doing business with is legitimate.
The Central Registration Depository or CRD is a database of brokerage and securities firms. Every brokerage firm and broker is required to register with the CRD and disclose certain information. This information includes the states in which the broker holds a license to practice, what professional credentials he or she has, whether there are any complaints against him or her and more.
To research your broker’s CRD information, you will need to contact your state securities regulator and the Financial Industry Regulatory Authority, or FINRA. The two administrations sometimes have different information, so it is best to contact both. You can find your state’s regulator on the NASAA website. Then, check your state’s webpage, which should have instructions for requesting a report on your broker. FINRA records are on its website.
CRD Records: What to Look For
When researching your broker’s CRD information, there are many factors to consider. First, make sure that the broker is licensed to practice in your state. Then, make sure that his current employer listed matches what he told you. You can also see your broker’s employment history and how many years of experience he has. Also be sure to read the Disclosures section carefully. Here, the broker lists all complaints received and how they were resolved. Ultimately, you are checking the CRD to ensure that your broker is who he says he is, and that there are no egregious or unresolved complaints or disciplinary actions.
Other Factors to Consider
If you are investing with a brokerage firm, it is important to find out if they are members of the SIPC. This is the Securities Investor Protection Corporation, and it protects your investments if the firm goes out of business. The SIPC is similar to the FDIC, which protects the money in your bank account. If you invest with a SIPC-member brokerage firm, and the firm goes under, the SIPC insures your securities up to $500,000, with a maximum cash claim of $250,000.
It is important to remember that the SIPC does not insure you against the loss in value of your investments due to a downturn in the market. So if your stocks devalue, or a company in which you hold stock goes out of business, that is the fault of a bad investment. The SIPC does not protect against that.
The SIPC also does not protect against trades that you claim were unauthorized, but you cannot provide proof to back that up. Always make sure to review your account statements. If you notice a transaction you did not authorize, immediately write a letter of complaint to your broker. Doing this will keep you protected in the case of firm insolvency.
Most brokerage firms are SIPC-insured, but it is important to make sure.
CRD and Investment Advisers
Investment advisers are slightly different from brokerage firms. Brokers actively manage your investments, buying stocks and bonds. The job of an investment adviser representative is to provide advice about buying and selling securities, like stocks and bonds. Often, however, a financial professional will act as both a broker and an investment adviser representative.
If you are working with an investment adviser, whether or not it is also your brokerage, you can research the business by looking up its Form ADV. The form has two parts, and both are important. Part 1 contains information about the business and any complaints against it. Part 2 describes the adviser’s business practices, fees, conflicts of interest and disciplinary issues. Commonly called “the brochure,” Part 2 is provided by advisers to all new investors and annually to existing investors. Your specific adviser representative must also provide a brochure supplement containing information specific to her history. You can view an adviser’s most recent Form ADV online on the Investment Adviser Public Disclosure (IAPD) website.
Small to mid-size investment advisers are registered with the state securities regulator, just like brokerages. You can request information about them from the NASAA website by clicking on your state and following the instructions. Advisers handling over $100 million per year must register with the SEC and are subject to federal regulations. Contact the SEC for more information about these large advisers.
Whenever you are doing anything with large amounts of your money, make sure you do your homework. When planning to invest with a broker, always research the broker and firm’s CRD record. Ensure that they can legally do business in your state and that they do not have any unanswered complaints against them. Also double-check that the firm is SIPC-insured.
If you are working with an investment adviser, be sure to look up the Form ADV and review both parts. Make sure you understand the fees, and check for any disciplinary actions.
Tips for Finding a Financial Advisor
- If you’re not sure where to start the search, a financial advisor matching tool like SmartAsset’s SmartAdvisor can help you narrow it down. First you’ll answer a series of questions about your situation and goals. Then the program will narrow down your options from thousands of advisors to up to three registered investment advisors who suit your needs. You can then read their profiles to learn more about them, interview them on the phone or in person and choose who to work with in the future. This allows you to find a good fit while the program does much of the hard work for you.
- Once you’ve narrowed it down, carefully examine your options. You should interview more than one financial advisor. Here’s a list of the questions you should be sure to ask the financial advisors you talk to.
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