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The Basics – Detecting Bad Stockbrokers

A stockbroker can be your best friend or worst enemy.  Their financial results can be the difference between enjoying a good night’s sleep knowing your money is in good hands or tossing and turning in the sheets with worry and anger. A bad or dishonest stockbroker can be a living nightmare for any investor who takes away y0ur retirement and your financial security.

Unfortunately, this nightmare is a reality for many poorly advised investors who find themselves solicited to invest in unethical and misleading investments. Selecting a good stockbroker is much like shopping for quality apples at your local grocery store. Just like apples, most stockbrokers are usually pretty good, but every now and then you might find a few rotten ones lurking at the bottom of the sack. Savvy investors examine their selections closely and look for the following unappealing characteristics:

  • They have a bad work history. Savvy investors can always go to FINRA’s BrokerCheck, which will keep them abreast to an advisor’s past, experience and qualifications, as well as any disciplinary actions against them.
  • They lack professional credentials. The best stockbrokers and financial advisors have certifications, such as certified financial planner (CFP), chartered financial consultant (ChFC) or chartered financial analyst (CFA). These professional certifications show that stockbrokers and financial advisors are dedicated to their craft as well as committed to the best interests of their clients. Furthermore, these professionals have endured extensive training and are held to rigorous ethical standards.
  • Your money is with a custodian who maintains cash and securities in an easily recognizable place.  Brokers who ask clients to write checks directly to them may signal unethical and fraudulent behavior. Clearinghouses are third-party firms or organizations that hold your money and provide reports to investors about investment performances.  Clearinghouses are often a part of large banks, such as JP Morgan Chase, Bank of America or Wells Fargo.
  • They are involved in churning. Churning is excessive trading (buying & selling) of securities in a client’s account in order to create commissions for the broker. Churning is considered to be illegal and unethical behavior by SEC laws. It may violate SEC Rule 15c1-7 and other securities laws.
  • They may have a conflict of interest. Some stockbrokers may control or have a conflict of interest in a particular investment opportunity.   In 2007, the Missouri Securities Division filed orders against Steven Gwin for encouraging senior citizens to invest in unregistered securities that he controlled. Later, he was found guilty of investment fraud.

It is paramount for all investors to be proactive with their accounts and investments. You should review your account regularly to stay abreast to activities. Review and examine your broker’s investment proposals and always ask questions for clarity of information that you may not understand. These simple steps can help you avoid many types of broker fraud and misconduct.

If you feel uneasy about an investment opportunity or have become a victim of stockbroker misconduct, contact the securities lawyers at Silver Law Group, a national Securities Arbitration & Investment Fraud Law firm. Their lawyers are admitted to practice in New York and Florida and represent investors nationwide to help recover investment losses due to security and investment fraud or stockbroker misconduct. The securities lawyers at Silver Law Group work hard to protect your money from the bad guys. Contact us at 800-975-4345.

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