11 Things Your Broker Won’t Tell You

Investment brokers are supposed to be the liaisons between consumers and their money. Ideally, a broker helps clients plan for their financial futures and accomplish their fiscal goals.

But that’s not always how the relationship works. Brokers also have their own interests, at the top of which is a desire to make money. All too often, the clients’ needs and desires come second to those of the investment broker – and the worst part is, the broker usually isn’t breaking any laws.

Here are eleven statements that you’ll never hear from your broker – but are too often very true.

1. “Those letters after my name on my door? They don’t mean squat!” Unless your broker is a CFA (Chartered Financial Analyst), CFP (Certified Financial Planner), ChFC (Chartered Financial Consultant), or CLU (Chartered Life Underwriter), chances are that the designation he or she advertises isn’t worth the paper it’s printed on. In fact, many of these “letter-labels” can be purchased outright without the individual undergoing additional training or coursework. The same goes for the word “senior” in their titles – there are no standards or guidelines that govern the use of that term.

2. “My record may be spotty.” There’s no law that says your broker has to disclose any legal or ethical black marks on his or her investing record. So be sure to check your broker’s history and references with the Financial Industry Regulatory Authority (FINRA). You can do so by using the group’s broker check feature on its website. But even if a broker comes up clean, he may not be; in the past, brokers had the opportunity to negotiate and have disciplinary action removed from their records.

3. “I have a sales quota.” That means that your broker might try to sell you a fund or investment in order to satisfy a quota, instead of because it might be in your best interest. It’s ironic, because it’s usually wise to buy and hold stocks and funds instead of trading them frequently. But brokers don’t get commissions unless they make transactions.

4. “I’m biased toward specific products or funds.” A broker who works for a firm may be under pressure from management to push certain proprietary investment opportunities. Or the broker might have incentives (like a trip, bonus, or cruise) to sell a specific fund. In some cases, the broker will call you up at work or at home and try to sell you on a “great opportunity.” It could be great, all right – but for your broker, not for you.

5. “I may only advocate what’s suitable, not what’s best.” This is known as the suitability standard, which only requires your broker to recommend options that fit your investing profile. They don’t have to offer you choices that might be more attractive or profitable at that moment in time, but they can (and will) tell you about what they want to sell you. Registered investment advisors, on the other hand, operate under what’s called a fiduciary standard, meaning that they must always put your financial interests ahead of theirs.

6. “I won’t tell you about what I can’t sell.” Often, brokers are only licensed or authorized to sell certain investment products to their clients. If it’s not on their list of available options, they probably won’t even let you know it exists.

7. “Even if you don’t make money, I will.” If you’re paying your broker commission on trades and other investment activity, then he or she is getting paid even when your portfolio is taking a financial hit. Again, this fact may cause your broker to push you to buy, sell, and trade more than is fiscally smart.

8. “I won’t tell you about all of the fees involved in a transaction.” You may know about commissions or flat trading fees. But your broker won’t go out of his or her way to inform you about hidden fees that are part of certain investment products. For instance, wrap funds carry their own fees and also require you to pay transaction costs and expense ratios on all the funds inside of the account. And your broker may try to sell you mutual funds with loads, or trailer fees on the front or back end, in order to ensure himself a steady stream of income. But in most cases, the same mutual fund is available as a no-load fund.

9. “If you heard it in the media, there’s a good chance that it’s nonsense.” Cable TV, Internet, and other news sources care about ratings, not about performance. But if you hear about a “hot” new stock on TV, your broker may still encourage you to invest in it even if he thinks it’s garbage. After all, he pockets the commission, right?

10. “I won’t ever encourage you to pay off your debts.” Why would a broker do that? Making the smart fiscal decision to decrease your debt load (and perhaps reduce the pool of money you wish to invest) won’t help him or her make money. In reality, there are many financial situations where the smartest thing a person can do is pay off debt, especially on loans or credit cards that have exorbitant interest rates.

11. “I’m not a genius.” If your broker knew how to consistently “beat” the market, he’d be filthy rich and not dealing with clients. In fact, there’s no guarantee that your broker has a better understanding of the market than you do. So if you hear something that sounds too good to be true, guess what? It probably is.


Chris Martin is a freelance writer who writes about topics ranging from cheap car insurance to consumer finance tips to home improvement suggestions.

2 thoughts on “11 Things Your Broker Won’t Tell You

  1. This is all great advice, it’s best to do your research and not just listen to an “expert” because they have a few letters after their name.

  2. This is my favorite:

    12. “Our books are never audited, so your statements may be fraudulent. Meanwhile, I am spending your deposits or co-mingling them with our own. By the time you find out, most of your money will be gone and FINRA won’t be much help.”

    It happens way too frequently, which is why I manage my own investments.

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