Don't Trust Your Broker

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I've written about the dangers of relying on stockbrokers before.

You see, most stockbrokers aren't traders, and they aren't analysts, but salesmen. They usher clients into financial products with little regard for their individual financial situation or the broader markets.

That doesn't make them bad people. In fact, I have friends who are stockbrokers, and they're nice people.

These friends of mine are trustworthy and try hard to make their clients money. But at the same time, I would never let any of them handle my money, not even a small portion of it.

That's why a new analysis published in yesterday's Wall Street Journal really grabbed my attention…

According to the Journal, some stockbroker misdeeds – including financial crimes and other serious felonies – aren't always disclosed to their brokerage house employers, or to the Financial Industry Regulatory Authority.

What you don't know about your brokerage business could hurt you…

The Truth About the Brokerage Business

The problem with most brokers is they aren't that smart… they just think they are. They think they know the market because "that's their business."

But most brokers really don't know squat. They ask you about your investment objectives and finances and what your hopes and dreams are in order to slot you into one or several of the categories. From there, they come up with an investment program "just for you." Only it's not just for you… it's the same program they shoehorn other clients into because they fit in that box, too.

They may sound like they know what's going on in the market, but that's because they watch CNBC and FOX Business to get their "market color" from the analysts and big money managers who guest on those shows.

If you watch those shows and read the Journal or other financial dailies, I guarantee you'll know more about what's going on than most brokers do.

That's because brokers aren't analyzing investments and the market for you. They're out trying to sell new prospects on becoming clients based on their market knowledge. And those "just-for-you" investments are designed by the analysts and "portfolio managers" the big brokerage houses employ to structure programs that are just specific enough to meet clients' expectations and give the illusion of personal service.

You're a cog in a great big machine at great big brokerages. Your broker is a tool, and not the good kind.

Brokers are a sad lot. They don't know what they don't know, but tell you what you should do with your money. It's scary.

But that's not the half of it.

These Bad Apples Can Be Rotten to the Core

What's even scarier is that too many brokers are bad apples with suspect pasts.

And that brings us to what The Wall Street Journal revealed this week.

The Journal analyzed 500,000 brokers in 21 states (there are 635,000 registered brokers spread among 4,000 brokerage firms in the United States) and found that more than 1,600 working brokers had failed to disclose important facts about their financial condition and problematic background histories (including serious regulatory violations).

Join the conversation. Click here to jump to comments…

About the Author

Shah Gilani is the Event Trading Specialist for Money Map Press. He provides specific trading recommendations in Capital Wave Forecast, where he predicts gigantic "waves" of money forming and shows you how to play them for the biggest gains. In Short-Side Fortunes, Shah shows the "little guy" how to make massive size gains – sometimes in a single day – by flipping large asset classes like stocks, bonds, commodities, ETFs and more. He also writes our most talked-about publication, Wall Street Insights & Indictments, where he reveals how Wall Street's high-stakes game is really played.

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  1. jordy | March 11, 2014

    now tell me all your thoughts on ameriprise

  2. michael | March 11, 2014

    I have read this report and I have had internal suspicions and has cost me money I stopped I trader as I felt strongly that he was trading small just to put as many trades on as he could if any of tem showed a profit in most cases it was not sufficient to cover fee/commission so it was a Minus, i totalled the score after 6 weeks trading CFD'#s commission account up nearly £1500 MY ACCOUNT DOWN £5OO, I PASSED TO ANOTHER TRADER with a different broker AND AT FIRST IT SEEMED I HAD DONE THE RIGHT THING ,BUT AFTER ABOUT 5 WEEKS HE WAS GOING DOWN THEN HE WOULD TELL ME ABOUT THE NEXT BIG THING AND IT WOULD BE UP AGAIN,BUT NO AFTER 6 WEEKS I AM DOWN ON THAT ACCOUINT TO THEIR COMMISSION £1600 AND I HAVEN'T SPOKEN TO HIM TODAY SO IT is PROBABLY WORSE I HAVEN'#T BEEN ABLE TO TALLY UP HIS SCORE AS THE LISTS DONT SEEM TO GET TO ME, TOM ORROW IT IS MY intention ,unless the re has been a reversal ,.is to cancel my account and hope to get my balance back to my bank,question I am ion the uk can I make a complaint about this to our fca
    hope its not boring
    regards
    mike norris

    • Goozeman | March 12, 2014

      thanks for the info.
      I am about to set up a brokerage acct and would like to know which 2 brokers they were, so as to avoid them.

      Thanks G

  3. Robert in Vancouver | March 12, 2014

    Stock brokers and analysts are on various TV programmes telling us to buy this and sell that, then next week they say the reverse.

    They make money when we buy and sell, but not when we hold a stock for the long term. They tell us there is no such thing as buy and hold anymore – they tell us you have to buy and sell and use stop losses. (Your stop losses serve them well. When you get stopped out due to a quick drop in the market they are right there buying your stocks at a cheap price.)

    I used to follow their advice but now I just listen to them to get an idea of what they are telling everyone else. Then I do my own research and do what is best for me. That's working out a lot better now.

    My main focus is on dividend paying ETF's, closed end funds, and triple net REIT's across all industries and market sectors around the world. Some of them use covered calls to enhance their dividends.

    So that's giving me an average of 8.4% dividend paid monthly and I don't really care much if my ETF's or funds go up or down. But when they go down along with a drop in the market, I buy more of them. (Stock brokers must hate people like me.)

    • Alfonso | March 12, 2014

      Hi Robert, I read your comment and I would like to follow your formula as I am sick of losing money. As I live in Australia and I am not very familiar with the terms EFT and REIT and also because I am not very knowledgeable as far as the sock market is concerned, would you be please more specific and show me with an example the way you do it?

      Thank you very much,
      Regards, Alfonso

      • Robert in Vancouver | March 16, 2014

        Just one more thing Alfonso, whatever advice you get from a financial advisor or anyone else – do your own research before buying or selling. Also you should learn about investing, take investing courses, read books and newsletters, follow TV and radio shows that specialize in business and investing.

        Don't buy or sell anything just because somebody recommends it.

        When buying or selling be cold hearted, logical, and really understand what you're about to do, don't be emotional or excited or in a hurry.

  4. Marvin | March 12, 2014

    If the brokers are not the place to invest. Who do you recommend.

  5. Robert in Vancouver | March 16, 2014

    Hi Alfonso, Sorry I can't give you any investing advice as I'm not qualified to give such advice. Everything I know about investing has been learned the hard way over the past 43 years of investing in the stock market. I'm just a small business owner, not a financial advisor or professional investor.

    There are REIT's and ETF's listed on the Australian stock exchange that you can buy with Aussie Dollars or US Dollars. I don't know if you are allowed to buy anything listed on other stock exchanges. You should find a licensed financial advisor in your area that's been giving investing advice for at least 15 years. That's all that that person should do. That advisor should not be in the business of selling stocks, bonds, ETF's, mutual funds, or other investments.

    Find an advisor who charges you for their advice. That should be how they make a living – they get paid to give clients good investing advice. Ask the advisor for at least 5 referrals and talk to those people to hear what they think of him or her.

    A REIT is a Real Estate Investment Trust. It is like a stock that pays a dividend either monthly or every 3 months. REIT's are companies that buy real estate. Most of them rent out their buildings on a triple net basis to various tenants. The dividend the REIT pays you is your share of the rent they collect.

    An ETF is an Exchange Traded Fund. These funds are baskets of stocks of companies, some are baskets of REIT's. So if you bought an ETF that has REIT's in it's basket, you would own various different REIT's by owning just that one ETF. There are ETF's that own baskets of REIT's, company stocks, bonds, commodities, and/or convertible debentures.

    All of my stocks, ETF's, and REIT's are listed on the Canadian stock exchange. Many of them do some or all of their business outside of Canada such as MOB.UN, it owns medical buildings in Canada, Australia, New Zealand, Brazil, and Germany. I only buy stocks, REIT's, and ETF's that pay a monthly dividend and I buy when their prices drop for no good reason other than the whole stock market has dropped.

    Some of the ones I own are HLP.UN, MOB.UN, EIT.UN, TN.UN, SMU.UN, OCV.UN, BTB.UN, KWH.UN, HGI.UN, HEX, HEJ, and FAY.UN.

    I'm not suggesting or wanting or encouraging anyone to buy any of the above mentioned stocks, ETF's, REIT's, or anything else. The above is just a list of some of my holdings in case anyone wants to look into the way I diversified my portfolio and risks to give me what I consider a reliable monthly income that I can live off of.

    Your personal and financial circumstances are different than mine. Whatever I think about an investment only applies to me, not to anyone else. Best wishes Alfonso.

  6. Michael Giomani | March 21, 2014

    Hi Alfonso ,
    I'm dealing recently with a brokerage firm they have an office in Japan and they are not registered in the FINRA , with every deal with them I feel something awkward, I get a little specious maybe they are fraud me . I want to trust them but I don't know how to, Could you help me please.

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