Is Your Stockbroker Family?

Do you have a family member who is also your stockbroker, investment advisor, or other financial services representative?

Many broker-dealer firms encourage newly-minted employees to recruit wealthy relatives to invest with them to begin their business and grow their client list. You may have taken the bait and moved your investments over, or may just be considering changing brokers to help them out. There isn’t anything wrong with doing this, of course, it’s your choice.

In many ways, you should treat them as you would anyone you’re considering to invest your money, since it is your money that’s on the line. The goal is to ensure that your money will be in safe hands, and handled professionally, family or not.

Ask Questions

Whether it’s your son or daughter, grandchild, or any other family member, you should ask questions without hesitation. While you may know their educational background, you’re still a customer and have the same rights as a non-relative.

Ask them questions such as:

• Are you a registered broker? If there is any hesitation in that answer, reconsider, or at least, wait until they are. It’s important that any stockbroker meets all the standards required in their profession.
• What kind of fees and/or commissions will you charge in addition to the monies I pay to you? You want to understand exactly what you can expect to pay under the agreement you sign, ensure that everything is properly disclosed, and that there are no hidden fees you won’t know about until they are charged.
• What are the margin requirements and how are they calculated? You need to know how much money needs to be in your account prior to any trading, and how much more you’ll need before you can implement individual strategies.
• Who is the custodian of my funds? They should readily provide the name, address, and phone number of your money’s custodian.
• Are you personally trading some of these same securities that you’re recommending that I trade? They may or may not be trading the same thing they recommend, so ask why and wait for an answer. If the answer you hear is rational, you may still decide to take their recommendations. However, avoid illiquid or speculative “alternative investments,” no matter how well they’re described.

You may have other questions—ask them, and don’t feel like you shouldn’t ask just to “be nice.”  You’re trusting a professional with your investments, so, you should understand everything they’re offering.

Due Diligence

Although your family member may have done some research into a particular stock before suggesting or recommending it, you should also commit to your own due diligence before investing in anything they may recommend.

Due diligence will mean gathering as much information as you can on the stock, its previous pricing, the company behind it, the company’s competitors, and other data to determine the company’s worthiness. The purpose of such research is so that you “know what you’re getting yourself into.” That is, you understand what the company is about, the risks involved, and other details about the stock before you decide to invest.

Your family member may give you a due diligence report that so that you have some information. However, it’s also best to research on your own to find out more, and what the report may not have included.

Of course, this is true of any investment you’re considering, and no matter who you’re investing with. Look for publicly available information on the stock, other type of investments and the company itself. Some of this may be available on the company’s website. Additional information can be found in trade publications as well as governmental sites such as the SEC’s and FINRA’s.

What To Expect

The stockbroker relationship should be kept strictly professional. You should expect to be treated like any customer, as well as proper due diligence and usual fees charged. Onboarding should be the same as any new customer, even if you think it’s not necessary.

Your family member broker should always ask your permission before giving your name as a reference to another potential client.

However, even though you’re a family member, it’s best to keep the discussions of stocks and other financial products limited to scheduled meetings and out of family events. Even though your stockbroker is a family member, your brokerage account comes with specific confidentiality rules that apply no matter who your broker is.

If you’re unsure of their abilities or intentions, not completely satisfied with how they’ve invested for you, or just uneasy about the arrangement, it may be time for you to consider asking for and moving your account to a non-relative representative.

Let Silver Law Group Help

Silver Law Group represents investors in securities and investment fraud cases. Our lawyers are admitted to practice in New York and Florida and represent investors nationwide to help recover investment losses due to stockbroker misconduct. If you have any questions about how your account has been handled, call to speak with an experienced securities attorney. Most cases are handled on a contingent fee basis, meaning that you won’t owe us until we recover your money for you. Contact us today and let us know how we can help.