Wall Street has been home to more than its fair share of scandals dealing with everything from accounting, research and access, and initial public offerings. Maybe you've just lost a fortune in the market. The money is gone, and it must be somebody's fault. There must be some way to get the money back. The next step seems obvious: sue your broker.

While it is true that you may be able to recover some or all of your losses based on broker misdeeds or misinformation, keep in mind your broker and other outside forces frequently aren't solely to blame. All too often, the real culprit is staring back at you every time you look in the mirror. In this article, we'll look at some of the things an investor should do ensure a healthy, lawyer-free relationship with his or her broker.

A Sucker Is Born Every Minute
One of capitalism's most astounding aspects is how legions of people willingly hand over their money to complete strangers without making so much as a single telephone call to verify the stranger's claims of credibility.


After giving their wallets to the "stranger," these people simply sit back and wait for the money to start pouring in. And if they don't get rich and lose a portion of their initial investment, they call a lawyer and sue. On occasion, they even win the lawsuit! Win or lose though, they still feel wronged. They are victims. They have been taken advantage of by unscrupulous capitalists ... or have they?

Your Obligations As An Investor
Becoming an investor gives you certain rights. When you buy stock in a public company, for example you are entitled to a number of opportunities and rewards. (These are explained in Knowing Your Rights As A Shareholder.)


However, as an intelligent investor (or, at least as somebody who would prefer not to be victimized), you also have an obligation to do all you can to learn about the person or organization you trust with your money and the investments your money will be used to purchase. Before blindly handing over your cash, the first step is making sure you've made a strong effort to hire the right kind of help.

Start by conducting some due diligence of your own. It is the safest way to protect your investments. After all, nobody cares about your money as much as you do! It doesn't take a genius to check references and ask questions about a broker. And, of course, the only dumb question is the one that wasn't asked. (For further guidance on choosing the right advisor, check out Understanding Dishonest Broker Tactics.)

Hiring someone to give advice doesn't absolve an investor of the responsibility for accepting that advice. Once the decision has been made to hire outside help, the investor's obligation to pay attention and remain fully engaged in the process doesn't disappear.

As an investor:

  • Every piece of paper that you are given must be read.
  • Every disclosure document must be reviewed until you understand it.
  • Every item that you find confusing must be questioned.
  • Every investment that you make must be researched until you are positive that you completely understand it.
  • Never sign anything that you don't understand, and always get a copy of everything that you do sign.
(For additional information about the sometimes naive expectations of investors, check out Do You Understand Investment Risk?)

What If You Did Your Homework, But Still Found Trouble?
If you have chosen well, the person providing financial advice to you has a fiduciary obligation to give you good advice. Despite that obligation, nobody is right every time. Before you blame your advisor for your losses, be sure you know your rights and responsibilities. If you have truly been a responsible investor, but still feel you've been the victim of a scam, you can take your issue to arbitration, or, in the most extreme case, consult a lawyer and head off to court.


Of course, the reality of litigation is often less rewarding than most people would hope. The process takes time and, if you actually get any money back, you may not get enough to cover the full amount of your loss. To put the odds in your favor, tread slowly and carefully any time money is involved. Set realistic expectations and, if it looks too good to be true, it probably is.

To prepare for the worst, read Is Your Broker Acting In Your Best Interest?



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