We see too many investors who might have avoided trouble and losses if they had asked basic questions from the start.
We encourage you to thoroughly evaluate the background of any financial professional with whom you intend to do business -- before you hand over your hard-earned cash.
Which financial professional you select is very important for several reasons. You'll want to investigate thoroughly before doing business with a financial professional or firm that has a history of complaints or problems with regulators.
Also, you should know that if your financial professional or his or her firm goes out of business or declares bankruptcy, you might not be able to recover your money -- even if an arbitrator or a court rules in your favor.
It doesn't matter if you are a beginner or have been investing for many years, it's never too early or too late to start asking questions. It's almost impossible to ask a dumb question about how you are investing your money. Don't feel intimidated.
Remember, it's your money at stake. You are paying for the assistance of a financial professional.
A good financial professional will welcome your questions, no matter how basic. Financial professionals know that an educated client is an asset, not a liability. They would rather answer your questions before you invest, than confront your anger and confusion later.
In this brochure, you'll find some questions that you should ask about investment products, the people who sell those products, and the people who provide investment advice to you. We've also included some tips on how to monitor your investments and handle any problems.
Keep this brochure on hand when considering an investment and use it by asking the right questions before you buy. Have a pen and piece of paper ready to take notes on the answers. They can come in handy if there is a dispute later about what was said during the transaction. Taking notes also sends a signal to your financial professional: I'm a smart and serious investor who wants to know more about the risks and rewards of investing.
Questions About Products:
- Is this investment product registered with the SEC and my state securities agency?
- Does this investment match my investment goals? Why is this investment suitable for me?
- How will this investment make money? (Dividends? Interest? Capital gains?) Specifically, what must happen for this investment to increase in value? (For example, increase in interest rates, real estate values, or market share?)
- What are the total fees to purchase, maintain, and sell this investment? Are there ways that I can reduce or avoid some of the fees that I'll pay, such as purchasing the investment directly? After all the fees are paid, how much does this investment have to increase in value before I break even?
- How liquid is this investment? How easy would it be to sell if I needed my money right away?
- What are the specific risks associated with this investment? What is the maximum I could lose? (For example, what will be the effect of changing interest rates, economic recession, high competition, or stock market ups and downs?)
- How long has the company been in business? Is its management experienced? Has management been successful in the past? Have they ever made money for investors before?
- Is the company making money? How are they doing compared to their competitors?
- Where can I get more information about this investment? Can I get the latest reports filed by the company with the SEC: a prospectus or offering circular, or the latest annual report and financial statements?
For mutual funds:
- How has this fund performed over the long run? Where can I get an independent evaluation of this fund?
- What specific risks are associated with this fund?
- What type of securities does the fund hold? How often does the portfolio change?
- Does this mutual fund invest in any type of securities that could cause the value to go up or down rapidly in a short period of time? (For example, derivatives?)
- How does the fund perform compared to other funds of the same type or to an index of the same type of investment?
- How much will the fund charge me when I buy shares? What ongoing fees are charged? How much will the fund charge me when I sell shares?
- Is the fund portable? If I move my assets to another firm, will I be able to continue holding the fund or will I need to liquidate it?
Questions About The People Who Sell Investments or Provide Investment Advice:
- Are you registered with our state securities regulator? Have you ever been disciplined by the SEC, a state regulator, or other organization (such as NASD or one of the stock exchanges)?
Investor Tip - Check Out Your Financial Professional
You can verify your broker's disciplinary history by checking the Central Registration Depository (CRD). Either your state securities regulator or NASD can provide you with CRD information. Your state securities regulator may give you more information from the CRD than NASD, especially when it comes to investor complaints, so you may want to check with them first.
You'll find contact information for your state securities regulator on the website of the North American Securities Administrators Association. To contact NASD, visit NASD's BrokerCheck website, or call them toll-free at (800)289-9999.You can find out about investment advisers and whether they are properly registered by reading their registration forms, called the "Form ADV."
You can view an adviser's most recent Form ADV online by visiting the Investment Adviser Public Disclosure (IAPD) website. At present, the IAPD database contains Forms ADV only for investment adviser firms that register electronically using the Investment Adviser Registration Depository. You can also get copies of Form ADV for individual advisers and firms from the investment adviser, your state securities regulator, or the SEC, depending on the size of the adviser.
- How long has your firm been in business? How many arbitration awards have been filed against your firm?
- What training and experience do you have? How long have you been in the business? What other firms have you been registered with? What is the status of those firms today?
- Have you personally been involved in any arbitration cases? What happened?
- What is your investment philosophy?
- Describe your typical client. Can you provide me with some names and telephone numbers of your long term clients?
- How do you get paid? By commission? Amount of assets you manage? Another method?
- Do I have any choices on how to pay you? Should I pay you by the transaction? Or a flat fee regardless of how many transactions I have?
- Do you make more if I buy this stock (or bond, or mutual fund) rather than another? If you weren't making extra money, would your recommendation be the same?
- Are you participating in a sales contest? Is this purchase really in my best interest, or are you trying to win a prize?
- You've told me what it costs me to buy this stock (or bond, or mutual fund); how much will I receive if I sell it today?
- Where do you send my order to be executed? Can we get a better price if we send it to another market?
- If your financial professional changes firms, ask: Did they pay you to change firms? Do you get anything for bringing me along?
Questions About the Progress of Your Investments:
- How frequently do I get statements? Do I understand what the statement tells me?
- Is the return on my investment meeting my expectations and goals? Is this investment performing as I was led to believe?
- How much money will I get back if I sell my investment today?
- How much am I paying in commission or fees?
- Have my goals changed? If so, are my investments still suitable?
- What criteria will I use to decide when to sell?
How to Handle Problems:Act promptly! By law, you only have a limited time to take legal action. Follow these steps to solve your problem:
1. Talk to your financial professional and explain the problem. Where is the fault? Were communications clear? Refer to your notes. What did the financial professional tell you? What do your notes say?
2. If your financial professional can't resolve your problem, then talk to the financial professional's supervisor (which, for brokers, is often the firm's branch manager).
3. If the problem is still not resolved, write to the compliance department at the firm's main office. Explain your problem clearly, and how you want it resolved. Ask the compliance office to respond to you within 30 days. If you're still not satisfied:
4. Send us your complaint by using our online complaint form or you can reach us as follows:
Securities and Exchange CommissionOffice of Investor Education and Assistance100 F Street, N.E.Washington, D.C. 20549-0213
At the SEC, we will research your complaint, contact the firm or person you have complained about and ask them to respond to your specific complaint or question. Sometimes our intervention yields a satisfactory result. If these steps don't work, you may need to take legal action on your own. We can send you information on mediation and arbitration, and suggest how to locate a lawyer if you need one. Investor TipWhen you ask these questions, write down the answers you receive and what you decided to do. If something goes wrong, your notes can help to establish what was said. Let your financial professional know you're taking notes. They'll know you're a serious investor and may tell you more. Use our form for taking notes when you speak to your financial professional.