When evaluating a potential broker, the first thing to do is check the Central Registration Depository (CRD) through your state securities office or the Financial Industry Regulatory Authority (FINRA).
This public database contains records on almost all practicing brokers and brokerage firms, and can tell you whether the broker or firm you’re evaluating is properly licensed to sell securities. You can also check the broker’s employment history and see if there are any regulatory actions, arbitrations, or serious investor complaints against the broker or firm.
You can request a free report through the FINRA BrokerCheck Web site (brokercheck.finra.org)
or by calling the toll-free BrokerCheck hotline at 800-289-9999. You
can ask to receive the report by email, regular mail, or over the phone — although email requests will usually be processed fastest.
You can also request a report through your state securities regulator, who may be able to provide you with additional information on brokers licensed by the state. A complete listing of state securities regulators and how to contact them is available at the North American Securities Administrators Association Web site, www.nasaa.org.
Along with checking your broker’s licensing and history, you should check whether your brokerage firm is a member of the Securities Investor Protection Corporation (SIPC).
This organization offers some protection if the firm holding your investments goes out of business. However, it won’t protect you from losing money if the value of your investments drops.
