In an ideal world, everyone would be able to find a stock broker that could look after their best interests as well as delivering stunning results for their financial portfolio.
However, in reality it is tough to connect with competent, qualified, canny money managers who work their magic within the bounds of the law and don’t also charge a hefty commission for the privilege.
Worse still, you could end up on the books of a broker who is less than legitimate in terms of how they handle stocks, in which case you might become the victim of professional misconduct.
So how can you work out whether you have fallen foul of a problematic stock broker? Here are a few key signs to keep in mind if you think something fishy is going on.
Confusing or unauthorized transactions
There are many common types of lawyers out there from divorce lawyers to family lawyers and personal injury lawyers to employment lawyers. But, did you know there are consumer fraud lawyers as well?
One of the first things that experienced consumer fraud lawyers will look at when investigating suspected stock broker misconduct is the types of transactions that they have carried out.
You should be able to get an overview of the transactions that your broker has made on your behalf, and if any part of this is either difficult to understand or not carried out with your full authority, then something could be amiss.
Volatility that doesn’t match your risk tolerance
Brokers will ask their clients to give them an idea of how much risk they’re willing to be exposed to when making investments. This lets them gauge the types of stocks and shares to buy, and manage their clients according to their wishes.
If you are not especially interested in high risk trades, then your broker should really park your money in what are safe, stable but relatively unremarkable stocks and commodities. This means that alarm bells should ring if you suddenly find that your portfolio has dramatically increased or decreased in value in a short period.
Such volatility might suggest that the broker isn’t listening to your requests relating to risk, so even if you have made money, this should be a red flag.
A lack of diversity
Stock brokers should manage the portfolios of their clients in an objective, impersonal way, and do so with a decent amount of diversity so that all of their eggs are not in one basket, so to speak.
Of course if you find that your broker seems to have gone all-in on a specific investment, plowing your cash into just one place, then this is definitely suspicious, as well as generally being a bad idea.
For example, it could signal that they have interests in the stock in question, and are trying to bolster their own position by leveraging clients’ money.
It’s unhelpful to expect that money you invest with a stock broker will always generate more money as a result. The peaks and troughs of market performance can mean that you lose cash at some points, and make big gains at others; it’s all part of the game.
However, that is not to say that you just have to shrug your shoulders if you’re losing money. In fact, if you are seeing losses in your portfolio, but your broker still seems to be raking it in, then this is a well-trodden warning that all is not as it seems.
Whatever raises your suspicions, you should always take action if you suspect you have been the victim of stockbroker conduct. This is not just a way of getting compensation yourself, but also of protecting others from suffering the same fate at the hands of an individual or brokerage.