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. Rememb
er, it's your money at stake. You are paying for the advice of your investment professional.
A good broker or investment adviser 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 an
d confusion later.
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? 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?
Questions about 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 other ongoing fees are charged?
Questions about the people who sell investments
- Are you registered with our state securities regulator? Have you ever been disciplined by the SEC, a state regulator or other organization? (For example, the National Association of Securities Dealers or one of the stock exchanges).
- What training and experience do you have? How long have you been in the business?
- 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 broker 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:
- Talk to your broker and explain the problem. Where is the fault? Were communications clear? Refer to your notes. What did the broker tell you? What do your notes say?
- If your broker can't resolve your problem, then talk to the broker's branch manager.
- 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:
- Send a copy of your letter to your state securities administrator or to the Office of Investor Education and Assistance at the SEC.
The SEC 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. The SEC can send you information on mediation, arbitration, and suggest how to locate a lawyer if you need one.
To contact the SEC:
Office of Investor Education and
U.S. Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549-0213
fax (202) 942-9634