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How to Choose a Stockbroker

By Edited Oct 7, 2015 0 0

In the world of personal finance, the question of how to choose a stockbroker comes up often.  Most individuals find it best to consult professional help when dealing with trading in the equities markets.  Equities trading as of late is a very volatile play and can result in major losses if done without a solid knowledge base in the markets.  Choosing the right stockbroker can put you on the path to riches, while on the other hand, choosing the wrong one can leave your trading account in shambles.  You will learn here how to choose a stockbroker that will provide you with quality advice and will know when to tell you no. 


Education Matters:  When you find yourself on the search for any type of professional assistance, the first thing you should research is educational background.  A person’s educational background can tell you a lot about them.  The job of a stockbroker is first and foremost to gather clients and build a book of business.  If this sounds familiar, then you probably have a background in sales.  Yes, stockbrokers are sales people, with a knowledge of financial markets.  The degree to which they understand the inner workings of a complex global economy however varies widely from broker to broker.  From a skill set perspective, stockbrokers generally carry a higher aptitude for sales than equities analysis.  This is unfortunate but true.  So what you want to look for is the stock broker that has the best background from an educational standpoint (MBA, MS Finance etc.).  Finding somebody who has put a lot of time into their education shows that they have a real genuine interest in the subject matter and will likely understand market mechanics better than say a broker with a Bachelors in Sociology and a Series 7.  All equities brokers are required to have a Series 7 license.  This test alone however does not fully prepare a person to manage money or make informed investment decisions.  There is no replacement for education and experience.  Aim for a broker first with a strong background in the former. 


Tenure Matters:  We just went over the fact that education is a primary determinant in how to choose a stockbroker.  Tenure is also important.  Industry experience when dealing with equities markets is invaluable.  If a stockbroker that you are considering has a poor educational background, but has 20 years of proven experience in the industry, you should certainly consider them.  Education is not the be all or the end all in how to choose a stockbroker.  Experience can trump education in some cases.  There are certain market conditions that can only be understood through personal experience in dealing with them.  Having traded through and seen an entire set of market cycles will help a stockbroker make informed decisions in any market environment.  The longer the stockbroker has been around, the better the odds he or she has experienced much of what the markets have to offer.  Tenure is important not only from an experience standpoint however.  The world of stockbrokers is wrought with turnover.  The fact that it is primarily is a sales role, younger stockbrokers fall by the wayside far more often than more seasoned brokers.  Therefore, finding a stockbroker with a minimum of 10 years in the industry is probably a safe bet.  Your job is to find a stockbroker that is going to be with you for the long haul, and will safely, and intelligently manage your investment decisions.  You are outsourcing a part of your financial life, make sure the outsourcer will be there in a year or two.  A stockbroker with 10 years or more of experience is likely to stick around for two reasons, 1. Non-Compete clauses generally prohibit brokers from taking clients with them if they leave and 2. Brokers who have survived 10 years in the industry likely have a healthy book of business that generates significant income.  These people are likely to stay put, which is a good thing for you.


Know The Firm:  I have always found it comforting to choose a stockbroker who represents a reputable and well respected brokerage house.  You know the big names, but you don’t have to limit your choices to the biggest of the big.  There are a well respected regional brokerage houses in every corner of the United States that provide quality financial advice to their clients.  Some of these regional type firms include Janney Montgomery Scott, Lincoln Financial, Raymond James etc.  At the very least, if the broker you are considering is not a part of a well recognized firm, then you must do your own due diligence to ensure that you are comfortable with the historical background of the fund as well as its future prospects.


Referrals:  When you meet with the stockbroker for the first time they will likely spend some time giving you their sales pitch, making you believe that they are as good as the Oracle from Omaha and all that.  The truth is, they’re probably not, he’s the best, we all know that.  Regardless, in order to get a true picture of the person you are about to do business with, you will need to speak with his or her current client base.  Once you have a handful of clients’ information, give them a call.  Ask the tough questions.  Ask whether the broker is quick to respond, ask whether they provide sound financial advice or if they simply react to your requests.  Find out if they are somebody that they would recommend to a good friend.  Ask about returns.  Just have a conversation, it’s not that hard, but will go a long way in determining whether this stockbroker is worth your time and money.  Remember, you are paying them to do work for you, not the other way around.  Getting in bed with a bad broker is a slippery slope.  Do your due diligence!

Learn the Lingo: Michael Sincere's Understanding Stocks

does a great job of breaking the investment world down for the novice investor.  It is easier to talk to potential stockbrokers when you are armed with more information.  This is a great place to get started.


So what have we learned?  Check the educational background, understand how long they have been in the business, learn about the firm they represent and consider calling up their current clients for information.  Remember, you can’t do too much research.  Good luck!




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