Many investors enter into a relationship with their brokers with little or no knowledge about their background, such as time in the business, expertise or ability to manage money. Investors also are often in the dark when it comes to particulars of the firms they are dealing with.

This is a mistake.

Well-informed investors who know the lay of the land and who ask the right questions can communicate their needs to a broker more effectively. Perhaps more importantly, they can also ensure that they aren't being taken advantage of, particularly when it comes to commission charges.

To that end, below is a list of questions and actions that will help ensure that your broker and your brokerage firm is representing your best interests.

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Do a Search

Go to the NASD website and conduct a search for your broker and his or her firm by name. Are there any judgments or liens against your broker? Has he or she been terminated by a prior employer? Have any complaints been registered? If so, what are they? The request for information is free, and often a detailed report will be sent to your email account within a few minutes of making a request.

This information will give you a basis for your future relationship with both the registered representative and the firm. In other words, it will either give you confidence that both parties are on the up and up, or that they are charlatans that must be avoided.

Ask Questions

Ask your broker or prospective broker why he or she works at the firm. Inquire about how many years your broker has been in the business, as well as the number of clients with which he or she works. Also ask what his/her "money line" is! In other words, how does the broker make money? Not only will knowing about a broker's money line let you know what the broker is making/charging in terms of commission, it will also give you a good idea of whether the broker has a decent number of clients.

Does the Firm Make Markets?

Most major firms are market makers, meaning they act as intermediaries between buyers and sellers when trading Nasdaq stocks. However, many of those same brokerage firms also use their market-making status to build an inventory of stocks so that they are not only making a commission off of you, but also money on the actual purchase or sale of the stock you buy. Remember, they buy at the bid and sell at the offer or ask. As an investor, you do just the opposite.

Simply asking whether the firm makes markets in the stocks you are buying will give you a better picture of exactly how much money is being generated from your account. This will also give you some leverage when it comes to negotiating your commission structure.


Remind your broker that you are benchmarking his or her performance against other major indices such as the Dow or the S&P 500. Also make it clear that if your broker isn't out-pacing these indices after a period of time, you can always buy mutual funds or ETFs that will track those indices. This won't fail to get their attention.

Review Your Monthly Statements and Ask Questions

You must review your monthly and quarterly statements! Account for every dollar. Look at every trade and confirm that the commission you agreed upon is being charged. If there are any discrepancies or you notice that any unauthorized trades have been made, you must approach or confront your broker - or better yet, the firm's sales manager.

Talk to the Sales Manager Periodically

Sales managers typically get an override on any commissions generated on your account. This means that they make money on any trades conducted in your account for supervising your broker and making sure the trades being executed are consistent with your investment objectives.

This means that you need to speak to this person on a regular basis. The sales manager is unlikely to be familiar with every detail of your account, but he or she will be able to tell you more about your broker's – and the firm's – history. Sales managers also can help you confirm information you have received from your broker.

The Bottom Line

Be informed. Letting your broker or advisor know that you have done your homework, that you are expecting them to perform and that you are ready, willing and able to detail your financial goals in a crisp, clear manner will make your relationship more productive. It will also put the advisor on notice that you are a savvy investor who cannot be taken advantage of.

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