In your pursuit to find a stock broker you may have received a stock broker referral from your friends or family members; and these may have been given to you with the best intentions. Like stock tips from friends and family, however, many times these referrals do not work out because they are not always a perfect match for your personal situation. Here are three quick things you can do to save time with any stock broker referral you are given:
First, do a quick background check on the broker. You can look up the personal history of any licensed stock broker by going to the regulatory website and find out if the broker has any history of securities violations. Go to: http://www.finra.org/ and click on the Broker Check link.
Next, know your own personality when it comes to money and investing. Are you scared to lose any money? Are you comfortable with risk? Do you prefer making quicker trades or do you like holding a position for the long-term? What is your market knowledge? Are you going to increase your understanding of the markets with individual study? All of these questions will force you to think seriously about your emotional relationship with money and will help you screen stock brokers who are not a match for your personality.
Third, know your goals. Do you want to retire in ten years? Are you starting a savings account for college education? Are you looking to do short-term swing trades or even day trading? Are you just wanting to put money away in your 401k for the tax benefits? Do you need your broker to give you advice and hand holding or do you want to execute your transactions electronically? Do you want to be able to short stocks or even buy and sell options? Answering questions like these will give you a profile about your goals. This self-profiling will help filter out stock broker referrals you are given by well-meaning family and friends.
Address these three tips and you will go a long way toward choosing a stock broker who has a clean record, matches your personality, and matches your goals. From there you can ask questions about commissions and fees, services offered (research, trading software platforms, etc.), and other specific questions or concerns you may have.
Having this quick, three-step process will make you also more educated. When others ask you for a referral, you can have them ask these questions and give these people much better information when choosing a stock broker. The process will help these people get a better command of their personal finances as well.