Valenti Hanley PLLC

What are brokers' responsibilities to investors?

There are plenty of do-it-yourself options out there for people who want to buy stocks and other types of securities. However, many investors turn to brokers for their experience and knowledge. Brokers, like other types of professionals, owe a duty of care to their clients. They are governed by the Financial Industry Regulatory Authority (FINRA).

Brokers have an obligation to get to know their client, their financial situation and their investment objectives -- including how much risk they're willing to take on. They're then obligated to provide suitable investment recommendations based on that information.

Brokers are required to give their clients honest and relevant information on prospective investments. They're also required to consult with clients before making any trades on their behalf and get their permission for those trades.

Finally, brokers must place their clients' needs above all else. They cannot talk a client into an investment that isn't right for them because it means a hefty commission or because they have some type of interest of their own in an investment. Their loyalty must be to their clients.

Investors nonetheless have a responsibility to do their own due diligence -- first regarding the broker and the firm they work for and then regarding any investments they're considering or that are recommended to them.

Investors also need to be honest with their broker about how much they're willing and able to invest and what their investment goals are. As these change, it's essential to keep your broker up-to-date.

Don't be afraid to ask questions. Your broker doesn't expect you to be an investment wiz. If you were, you wouldn't need them.

Besides doing your homework before you partner with a broker, it's essential to trust your gut. If you feel like your broker is pressuring you to make an investment or dump one, find out why.

It's wise to keep a chronological record of all of your signed agreements with your broker as well as all of your transactions. This can be helpful if you have a dispute with your broker.

If you do, you should begin by notifying the broker and their firm in writing. You can also notify FINRA via its Investor Complaint Center. If you believe that you've lost money due to inappropriate actions taken by your broker, it may be wise to consult with a securities attorney.

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