Protect yourself from Bad Brokers. Red Flags to watch out for

Posted December 30, 2008 by Bernz

How is it possible that thousands of clients could be scammed by one money manager? It’s a terrifying thought. But Bernard Madoff, a money genius and perhaps the biggest money manager swindler in history has eluded the SEC and his client’s for decades. Click here to read the latest details in the Wall Street Journal.

stockbroker-mosnewsSurely there were red flags. That’s always the case, but people tend to look red flags even when they have a gut feeling something is just not right because they don’t have knowledge or experienced to substantiate their uneasiness. I’m sure in hindsight; many of Madoff’s client’s can think back and pin point when they first felt something was not right.

In recent postings I’ve been discussing brokers, specifically how to find them. Now I think is a good time to explain the flip side of the coin: What dangerous signs to watch out for:

A stock only portfolio. Remember the phrase “Just say No”. Apply it here if your broker makes this suggestion. You can read several posting on my site that discusses the importance of a diverse portfolio. Your investments should includes a mix of stocks, bonds, cash—real estate, mutual funds, etc.

Over the top account expenses. Anything more than 3% in annual account management fees means you need to start asking questions, maybe even write a complaint letter to your brokerage firm.

A portfolio that appears to exceed the value of the overall market as measured by S&P. For example if your broker suggests you invest in highly speculative stocks, you increase your volatility to the point that you could lose your entire retirement fund.

What to do if you suspect foul play from your broker or any money manager? If your claim is less than $25,000, you can file for arbitration without having an attorney. If your claim is above $25,000, you should consult an attorney who is experienced in securities arbitration law.


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