The Investor’s Checklist

  1. Receive complete information about the risks, obligations, and costs of any investment before you invest.
  2. Don’t be rushed into an investment. Make a quick decision today and you may regret it for a lifetime.
  3. Contact your state securities regulator to obtain all regulatory information about firms and individuals handling your accounts.
  4. Receive copies of all completed account forms and agreements.
  5. Make sure you understand your account statements and check for accuracy.
  6. Make sure you can access your funds in a timely manner and receive information about any restrictions or limitations on access.
  7. Know precisely how much an investment is costing you in fees, commissions or other charges.
When you invest in securities, you buy and sell, or trade securities. Usually you trade through an intermediary such as a broker, who places your order in exchange for a commission or fee. The intermediary you choose will depend on the investments you want to make and whether you want financial advice as well.
 
You can buy almost any kind of security by setting up an account at a securities brokerage firm. Brokerage firms, also called broker-dealers, must be registered, and the brokers who work there - also known as agents, or registered representatives, or financial advisers - must be registered. Brokers receive commissions on what they sell. Some brokerage firms operate only online, but they must still be registered, and you still pay for their services. Many banks have broker-dealer representatives on the premises. These representatives are not bank employees and the products they sell are not FDIC insured.

An investment adviser provides advice, helping you develop a plan for meeting your financial needs and goals. Like securities broker-dealers and their agents, investment advisers and investment adviser representatives must be registered, though the rules governing their responsibilities differ. Most investment advisers are paid a fee, not commissions. Some do not trade investment products for you, but simply provide advice—so you need to set up a brokerage account to actually buy and sell investments.

If you want to invest just in mutual funds, you may open an account with a mutual fund investment company and purchase shares in the fund directly. Or you may buy funds through your broker or adviser. And if you want to buy only insurance products, like annuities, you can work with an insurance agent. Insurance agents must be licensed by each state in which they sell products, and most are paid with commissions.

Doing Your Homework

While most brokers, investment advisers, financial planners, and insurance agents are honest, some may sell fraudulent or inappropriate investments or try to pressure you into acting quickly. Unregistered brokers and investment advisers might appear to be legitimate and may even sell genuine products, but they operate without being properly registered, which is illegal. If you follow some basic rules, you can help protect yourself by checking an individual’s or firm’s credentials before you agree to work with him or her. There are several ways to check investment professionals’ backgrounds. Start by asking for their office phone number and address and confirm they actually have a place of business. Then check that they’re properly registered or licensed.