FINRA - Investor Information - Investor Brochure Series

Once you have determined your investment needs, it's time to tap into the resources available to help you meet those needs. Your investment team is the collection of professionals and institutions that will handle your money, advise you, and help manage your selected investments. This team includes individuals, such as your broker or accountant, and institutions such as your bank, investment firm, or pension fund.

When building your investment team, it's important to remember that the individuals on the team could come and go over the course of your investment cycle. Thus, you may want to focus on companies and institutions you trust so that if your personal contact there does leave the firm or institution, you at least have the assurance that a quality institution is handling your investment needs.

A good place to begin building your investment team is at an institution with which nearly every investor is already familiar--the local bank. An often overlooked source of information, banks have literature on many different forms of investments. Some banks also have programs that offer investment products, such as stocks and bonds. Many banks also now offer at-home banking software that can help you track your monthly expenses and income.

Seek Advice

For investors whose employers offer retirement plans for employees, their plan administrators are another good source for information. If you have a retirement plan, you should collect and review literature about the plan options available to you and find out when you will be vested, that is, when you are entitled to your employer's contribution to the plan. You should also learn what percent of your own income can be contributed to the plan, pre-tax. In addition, you should find out when and how to change the percentage you may contribute to the plan.

Tax advisers or accountants can help you learn the intricacies of any tax ramifications of the different retirement strategies that you are considering. Ask them about any capital gains taxes that may arise on profits from the sale of any assets. Also find out about tax-deferred opportunities through IRAs, 401(k)s, and similar programs.

An estate attorney can provide advice if you are concerned about the transfer of assets after your death. There are many complex rules governing estate taxes, capital gains taxes, and more. Estate attorneys know what laws permit some transferring of assets during an investor's lifetime and can also help with planning for the future.

Finding and Choosing a Broker

Many stock transactions for individual investors are handled through a stockbroker. Most of these brokers are honest, competent professionals, and there are organizations like FINRA, to help make sure that the few who are not are identified and disciplined—sometimes even barred from the industry. But there is more to finding a stockbroker than knowing which ones might not be trustworthy. The key is finding the broker and brokerage firm that make you feel comfortable and best meet your personal financial needs.

Brokerage Firms Differ

There are many different types of brokerage firms, and the costs for their services vary according to how much or how little they do for you.

If you are a more experienced investor and have made up your own mind about the securities you want to buy or sell, you might consider a discount brokerage firm that charges a minimal fee for simply executing the transactions that you have selected. Online investing services are the latest trend in discount brokering—you do your own research, select your investment, and then trade online for a minimal fee. A full-service brokerage firm, on the other hand, charges a little more, but typically provides you with information, support, recommendations, and investment advice, in addition to executing your transactions.

Some of the largest firms have names you recognize and may have hundreds of convenient branches across the country. Smaller firms—usually single office operations located near your home or business—may be run by someone you know, or may have a better understanding of the local economy and regional securities. What is most important in selecting a brokerage firm is that you find one that offers you all the services you are looking for, that is safe and reputable, that offers its policies and fee structures in writing, and that is a place you feel comfortable doing business.

Selecting a Personal Broker

Whether you select a brokerage firm first and then choose a broker from among its associates, or whether you find an individual broker and accept the firm at which he or she is employed, is strictly up to you. Either way, when selecting a broker, you will want to take your time and do your homework. Perhaps the best place to start is by talking with your friends, neighbors, relatives, and colleagues—especially those who have some experience as individual investors. Ask the names of their brokers, how long they've done business with those brokers, and how much or how little they have relied on their brokers' advice. Ask if they have ever had a problem with their accounts, and if so, how well and how quickly the matter was resolved.

Ask your friends about their relationships with their brokers—some people want a broker who is willing to take plenty of time to discuss and explain investments with them; others want a broker who provides information when asked, but otherwise stays pretty much out of the way. Determine the type and amount of support you will need from your broker at this time, and find one who matches that need.

If you don't know anyone personally who could recommend a broker to you, there are other avenues to explore. Look through the phone book—yes, the yellow pages—and maybe search the Internet. Check with local consumer or investment groups. If you receive the name of a potential broker or brokerage firm from a public source or a group or individual whom you don't know personally or don't know well, be certain to ask the broker for several references. These references should be other individual investors, like yourself, whom you can contact independently and ask the same questions you would have asked a friend or relative.

After you have narrowed down your selection to just a few names, you need to interview the brokers yourself. Arrange an appointment with the individual brokers whom you are considering. You may only need 15 or 20 minutes, but allow plenty of time to get all your questions answered, and conduct the interviews in person, rather than on the phone, if at all possible. Ask the potential brokers how they think they would assist you and ask them to give examples of how they have helped other customers in situations similar to yours—new investor, conservative investor, risk-taker, retiree, etc.

Take time to understand how the broker is paid; ask for a copy of the firm's commission schedule. Firms generally pay brokers based on the amount of money you invest and the number of completed transactions in your account. More compensation may be paid if a broker is selling his or her firm's own investment products. Ask what the fees or charges are for opening, maintaining, and closing an account.

At the initial interview, obtain a copy of the account agreement, fee structure, and any other documents you would be asked to sign if you were to open an account with that broker. That way, you can take the paperwork home to read carefully at your own pace, and make comparisons if you are considering brokers at several firms. If the prospective broker pushes you too hard to open an account on the spot, this might be an indication that he or she will be overly aggressive in pushing you toward certain investment decisions in the future. In addition to the documents that you would need to sign, some brokerage firms have brochures or other informative material that would be helpful to you. Be sure to ask—and be sure to give the broker "extra points" if the information is offered to you first.

There is a pretty distinct difference between brokers who are "enthusiastic" and those who may be trouble—and that is their willingness, ultimately, to let you do it your way. Any broker who refuses to execute a transaction according to your instructions, refuses to answer your questions to your satisfaction, or refuses to provide you with written documentation of transactions should be reported, first to the brokerage firm's management, and then to the appropriate authority, if necessary.

If a Broker "Selects" You

Many securities industry professionals solicit new customers through "cold calling"—that is, making calls to the homes of individuals they don't know, just to see if there is any interest in an investment product they are promoting at the time. Most brokers who make cold calls are selling legitimate products and services that might interest you, and if you don't already have a broker, this is another way of getting one. However, there are rules these brokers must follow:

Brokers may not call before 8:00 a.m. or after 9:00 p.m., unless you have specifically given them permission to do so.
The caller must immediately tell you his or her name; the firm's name, address, and phone number; and that the purpose of the call is to sell you something.
If you don't want to receive any more sales calls from that broker or firm—at any time of the day—you may tell the broker to put your name on the "do not call" list that every securities firm is required to keep.
The broker may not complete the sale by drawing or transferring funds from your checking, savings, or other account without your written permission.

Whether you are selecting a broker, or one has found you, take your time in making a decision, always get more than one opinion, and request written documentation to support oral agreements and information. An open, honest, and vigilant relationship with your broker can lead to a financial "partnership" that satisfies both of you for many years to come.

Investment Choices

Your Investment Team