Seeking the help of a broker or investment adviser is an option many investors will choose. But in their quest to find the formula for how to become a millionaire through the help of a broker working for a firm, many people make the mistake of assuming that such individuals and corporations are driven solely by the commission of a smart move in their favor. While you can count on brokers to work to keep you happy with successful recommendations in order to keep you on board, they may not always be doing what’s best for you. Here are five things your stock broker might not be telling you:
Publicly traded investment firms look out for shareholders first.
You expect the companies you’ve invested money into to look out for your best interests, correct? The same goes for the shareholders of the corporate investment consultancy you work with. Always keep this in mind when working with a broker at such a firm.
Brokers are under no legal obligation to monitor investments after sale.
Investment advisers are obligated by law to monitor the quality of a sold investment so long as the owner is still a client of their firm. Brokers, on the other hand, only have to make sure the investment is good at the moment of sale. While laws have been enacted to incentive brokers into avoiding giving haphazard advice, nothing keeps them from doing so.
He or she may earn commission from companies you buy stock from.
It sounds too dastardly to be true, but it is. Corporations make a habit of offering perks to brokers who can sell their stocks. Depending on what the company does or makes, your broker could be sent a brand new executive office chair or offered an all-inclusive cruise.
Brokers can be forced to sell certain stocks.
Either through aforementioned pressure from shareholders or from the fact that many brokers often get doled out a disorganized array of investment products, you may not always be given good recommendations simply because the higher-ups have forced your broker to push junk.
Not every broker is an expert on every investment product.
The idea that one individual can master the art of stocks, bonds, commodities, and mutual funds and not be working out of Goldman Sachs HQ is a bit far fetched in today’s complex global market. Take any claims of such broad authority with a grain of salt. Additionally, many brokers will steer you away from a particular investment because they don’t really understand it. Options are a perfect example of this.
While brokers and investment advisers have their uses, don’t get swept up in the misconceived notion that they are there solely to ferry you to investment success. Grill them in order to get the right answers, and learn how to smell a stinky suggestion. If it’s a recurring problem, then perhaps its time to get a new broker, or learn to invest without one.