Frequently Asked Questions
Q: If you are ready to invest, how do you go about finding a reputable broker?
A: You can ask people you know for referrals. But, before you take their advice, be sure that you understand the basis of their recommendations. You’d be amazed at this, but when people are asked to rate their stockbrokers, the majority place more important on the broker’s personality than on how well their investments are performing. So make sure that you’re taking advice from people who understand how to read their statements, and who are satisfied with their brokers for the right reasons. And before you sign on the dotted line, you should call an agency such as the FINRA (Financial Industry Regulatory Authority) to find out whether there have been any disciplinary or arbitration proceedings against that broker.
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Q: We often hear a phrase “without risk.” Do you think there is any such thing as a risk-free investment?
A: No, there’s always an element of risk. Risk is the most understated and undertalked-about word in investing. Many stockbrokers avoid the subject, and investors often fail to ask about it. One of the most common mistakes investors make is that they ask, “How much money can I make?” when they should be asking, “How much money can I lose?”
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Q: Would you recommend that prospective investors educate themselves by attending seminars and purchasing investment tapes?
A: Absolutely not. The seminars and tapes that you see advertised are all money-making ploys. Ask yourself this: If these “financial gurus” really had all the answers, why would they be selling secrets?
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Q: Once you’ve made an investment, what should you do?
A: You have to protect yourself against “getting taken.” Stockbrokers often have their own agenda. Make sure that you’re in touch with your broker at least quarterly. This lets him or her know that you’re keeping yourself informed. Log the phone calls. Read your account documents, confirmations, and statments, and keep copies of them. Understand what you’re reading. Compare your monthly statements to the previous month’s statements. You might also ask your accountant or another broker of a “second opinion.” Never relinquish control of your money, and you won’t be providing anyone with the opportunity to take advantage of you.
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Q: If you’ve already lost money due to fraud or negligence, what steps should you take?
A: Write a letter to your stockbroker and the brokerage firm that states exactly what the broker did wrong. Then, you have to make a legal and economic decision: should you try to mitigate the damages by liquidating your account immediately, or should you stay in and try to recoup your loss? I usually recommend that people do the former; remember, if you decided to stay in, any further losses you might suffer may not be recoverable. Whether or not to take risk is up to the individual. Also, you should seek expert legal counsel as soon as possible. An attorney will help you determine whether or not you have a solid case for arbitration.
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Q: If someone were to seek your advice, what should he or she expect?
A: We would ask them to tell us, in detail, what happened. Then, we have them fill out a questionaire so that we can determine whether or not we have a case.
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Q: What are the chances of recovering your money without going to arbitration?
A: Your chances are quite low. You would only recover your money without going to arbitration if the brokerage firm management knew that the broker did something grievously wrong or if they wanted to avoid adverse publicity and the cost of arbitration.
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Q: Can you recover your money even if the loss occurred years ago?
A: As a general rule, it’s best to file an arbitration claim within six years. But, that’s not to say that it’s ever too late to recover your money. Again, look to an expert for advice. Find a good securities lawyer and together you’ll be able to determine whether or not you have a strong case.
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