Can I trust my Broker ?

Gary Alt |

Q: I’ve been working with the same stock broker for the past several years. My performance wasn’t very good last year and this year isn’t looking any better.  I’m starting to wonder if the arrangement is as good for me as it is for him. How do I know if I can trust my stock broker?

A: I’m not sure if your real concern is your broker’s trustworthiness or the quality of advice you are getting. Either one would be ample reason to look for a new financial advisor, but you should clarify your thinking before you make a decision. Anyone with the necessary skill and discipline can improve their performance. Moral character is a different matter completely.

A lot of people are skeptical of stock brokers. A couple of years ago, the Wall Street Journal reported on a nationwide opinion poll that showed more people trusted Uber drivers than stock brokers. Professions that fared worse than stock brokers included advertising executives, used-car salesmen and members of Congress. I’m not sure that should give much comfort to stock brokers.

Trust concerns are not necessarily misplaced. A 2016 study published by the Becker Friedman Institute for Economics at the University of Chicago looked at the employment history of brokers registered with the Financial Industry Regulatory Authority (FINRA) in the United States between 2005 and 2015. Of the 1.2 million brokers studied, nearly 93,000 had a misconduct-related disclosure on their record and one-third of those were repeat offenders. Past offenders were five times more likely to engage in misconduct than the average broker. What’s more, certain firms had significantly higher rates of broker misconduct than others, suggesting that some corporate cultures tended to encourage, or at least tolerate, bad behavior more than others. Therefore, while you are researching a specific individual, you probably want to look at the individual’s firm as well.

FINRA’s Broker Check website ( can tell you a lot about your broker and his firm. When you pull up the website, you will be given the opportunity to choose between an individual or a firm. When you select “individual” and enter the name you are looking for, the website will tell you the broker’s years of experience, work history, licensing exams passed, and whether or not there are any disclosures.

Disclosures provide information about disciplinary events, customer disputes and financial matters such as personal bankruptcy. Some disclosures may not be for misconduct and some may involve pending actions including unresolved or unproven allegations. Broker Check will give you a summary explanation of the disclosure and the broker’s most recently submitted comments about the disclosure.

You can also tell a lot about your broker’s trustworthiness by thinking carefully about the recommendations he makes. For example, if your broker recommends buying a variable annuity in your IRA, get another broker. Most people buy variable annuities for tax deferral. However, IRAs already enjoy tax deferral so buying the variable annuity in the IRA would be redundant. The only one who would benefit from that transaction is the broker, who typically gets a much larger commission for selling a variable annuity. Other danger signs include excessive numbers of transactions, trying to get you to make investments that you don’t understand, or recommending investments that simply don’t make sense for your personal situation.

Inviting the expertise of a professional advisor into your financial life can be a very smart move. However, do yourself a favor and do your research ahead of time to make sure your advisor is worthy of your trust.


Steven C. Merrell  MBA, CFP®, AIF® is a Partner at Monterey Private Wealth, Inc., a Wealth Management Firm in Monterey.   He welcomes questions that you may have concerning investments, taxes, retirement, or estate planning.  Send your questions to: Steve Merrell,   2340 Garden Road Suite 202, Monterey, CA  93940 or email them to: