Tracy Stoneman - Stoneman Law
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Picking the Right Stockbroker

Continuing this series of articles on choosing professional investment help, the following assumes that you have decided to hire a stockbroker. The less experience and knowledge you have about the investment world, the more important it is that you take the time necessary to choose the right stockbroker. Even for those of you who have been using a stockbroker for some time, you should use the comments in this article in order to evaluate your current broker.

The Importance Of It All

There are three primary reasons you should set aside time to choose and/or evaluate a stockbroker. First, stockbrokers have a built in conflict of interest that heightens the need for evaluation. Second, most people who are investing money are investing money that they cannot afford to lose. Finally, the markets can be extremely volatile. It is far too common that monies earmarked "safe" are suddenly gone - maybe because of a volatile investment. Worse yet is when the loss is due to misunderstandings or outright fraud. The financial impact of entrusting your money to the wrong person can be devastating.

Its harder to choose a stockbroker today. In the old days, the phrase "picking a stockbroker" was easily definable. Today, youll find very few of these type individuals that even call themselves "stockbrokers." They all have fancy titles, like "account executive," "financial consultant" and, like in a bank, almost everyone at a brokerage firm is a "Vice President" -- of something. What do you make of all of these titles?

What Is a Stockbroker?

What is a stockbroker? A stockbroker is an individual who has passed a Series 7 examination by the National Association of Securities Dealers (NASD). This exam allows the stockbroker to buy and sell stocks, bonds and mutual funds through the NASD and the various national stock exchanges. These persons can have other licenses, but the great majority of them will hold a Series 7, a Series 63 (which they are required by state law to have), and a Series 3 if they trade commodities. If you are talking to someone who doesnt have a Series 7 and a Series 63 license, you are not talking to a stockbroker.


Generally, it is advisable to choose a stockbroker in your vicinity. One client of mine was shocked to discover, upon meeting his distant stockbroker, that the broker was younger than his own children. Assuming that you are relying on the stockbrokers recommendations, it is important to build a good, long term relationship with a broker, which is easier to do when you are close. Also, the ability to have at least twice a year "face to face" meetings regarding your portfolio is very valuable. On the other hand, locale may be less important if you are making many of the investment decisions yourself or if you travel regularly to the city where your broker resides.


At the majority of brokerage firms, an individual who calls up and expresses a desire to open up an account is given to what is known as the "broker of the day". Typically, this is a rookie broker in the process of trying to build his book of business. If you have little knowledge or experience, you may be teamed up with a broker who likewise has little knowledge or experience - a potentially disastrous combination.

Stockbrokers are not like doctors or CPAs, where youth or being fresh out of school can be a benefit. Whereas a doctor has gone through perhaps a decade of schooling and training before he can set up shop, a stockbroker can lack a college degree and can pass the Series 7 exam by taking a 4-day cram course. There are many things about the investment markets that only years of hands-on, personal experience can teach a stockbroker.

So, what kind of experience should you be looking for? Seasoned. In terms of years - 5 minimum, 10 preferable. Most young brokers have only experienced bull markets and are not familiar with prolonged, down markets. Also, the broker must be able to prove to you that he has experience in all of the areas and types of investments that you are interested in. Unless you yourself are an experienced investor and are interested in limiting your investments to a very discreet area, make sure that the broker has experience in the full array of investments that you are considering.

Track Record

The irony is that the term "track record" has two different meanings for investors and the brokerage industry. Investors want to know how well the broker has done for other similar investors. Brokerage firms, on the other hand, evaluate their brokers based upon the amount of their commissions. The sad reality is that brokers are no better and maybe a tad worse than any other profession as far as painting a rosy picture when asked about experience, track record, or knowledge. It is rare in our society to find an individual in the sales business who doesnt proclaim that they are one of the best.

After you narrow your options down to one or more potential stockbrokers, that is the time when you may want to do some investigatory work regarding the brokers track record for customer complaints. Brokers are required to report all written customer complaints against them, even if its simply a letter of complaint and even if the claim is later abandoned. The industry requires this so it can monitor the conduct of stockbrokers. You can access this list of complaints for a particular stockbroker in one of two ways. You can call the NASD at 1-800-289-9999 or better yet, call John Dedan at the Colorado Division of Securities at 303-894-3230. I currently have a client who had a bad experience with an out of state broker involving a trust account for their children. My clients obtained the complaint history of the broker they were considering here, only to discover that the broker had a $300,000 claim filed against him for infractions in a trust account. They requested a different broker within the same firm.

Just because a broker does not have a complaint record does not mean that he or she is squeaky clean. Many investors dont know what their rights are, so they don't complain. Or, they complain by phone and those complaints are not required to be recorded.

Contact Ms. Stoneman - Stoneman Law Offices - Texas & Colorado. (800) 783-0748 Free Consultation - Representing Clients Nationwide 
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