You Should Ask About Your Investments ...
and What To Do If You Run Into Problems
best advice we can give you about how to invest wisely.
We see too many investors who might have avoided trouble
and losses if they had asked basic questions from the start.
you to thoroughly evaluate the background of any financial
professional with whom you intend to do business—before
you hand over your hard-earned cash.
Which financial professional you select is very important
for several reasons. You'll want to investigate thoroughly
before doing business with a financial professional or
firm that has a history of complaints or problems with
regulators. Also, you should know that if your financial
professional or his or her firm goes out of business or
declares bankruptcy, you might not be able to recover
your money—even if an arbitrator or a court rules in your
It doesn't matter
if you are a beginner or have been investing for many years, it's
never too early or too late to start asking questions. It's almost
impossible to ask a dumb question about how you are investing
your money. Don't feel intimidated. Remember, it's your money
at stake. You are paying for the assistance of a financial professional.
A good financial
professional will welcome your questions, no matter how basic.
Financial professionals know that an educated client is an asset,
not a liability. They would rather answer your questions before
you invest, than confront your anger and confusion later.
In this brochure,
you'll find some questions that you should ask about investment
products, the people who sell those products, and the people who
provide investment advice to you. We've also included some tips
on how to monitor your investments and handle any problems.
Keep this brochure
on hand when considering an investment and use it by asking the
right questions before you buy. Have a pen and piece of paper
ready to take notes on the answers. They can come in handy if
there is a dispute later about what was said during the transaction.
Taking notes also sends a signal to your financial professional:
I'm a smart and serious investor who wants to know more about
the risks and rewards of investing.
- Is this investment
product registered with the SEC and my state securities agency?
- Does this investment
match my investment goals? Why is this investment suitable for
- How will this
investment make money? (Dividends? Interest? Capital gains?)
Specifically, what must happen for this investment to increase
in value? (For example, increase in interest rates, real estate
values, or market share?)
- What are the
total fees to purchase, maintain, and sell this investment?
Are there ways that I can reduce or avoid some of the fees that
I'll pay, such as purchasing the investment directly?
After all the fees are paid, how much does this investment have
to increase in value before I break even?
- How liquid is
this investment? How easy would it be to sell if I needed my
money right away?
- What are the
specific risks associated with this investment? What is the
maximum I could lose? (For example, what will be the effect
of changing interest rates, economic recession, high competition,
or stock market ups and downs?)
- How long has
the company been in business? Is its management experienced?
Has management been successful in the past? Have they ever made
money for investors before?
- Is the company
making money? How are they doing compared to their competitors?
- Where can I
get more information about this investment? Can I get the latest
reports filed by the company with the SEC: a prospectus or offering
circular, or the latest annual report and financial statements?
- How has this
fund performed over the long run? Where can I get an independent
evaluation of this fund?
- What specific
risks are associated with this fund?
- What type of
securities does the fund hold? How often does the portfolio
- Does this mutual
fund invest in any type of securities that could cause the value
to go up or down rapidly in a short period of time? (For example,
- How does the
fund perform compared to other funds of the same type or to
an index of the same type of investment?
- How much will
the fund charge me when I buy shares? What ongoing fees are
charged? How much will the fund charge me when I sell
- Is the fund
portable? If I move my assets to another firm, will I be able
to continue holding the fund or will I need to liquidate it?
The People Who Sell Investments or Provide Investment Advice:
- Are you registered
with our state securities regulator? Have you ever been disciplined
by the SEC, a state regulator, or other organization (such as
the Financial Industry Regulatory Authority (FINRA) or one of
the stock exchanges)?
Investor Tip - Check Out Your Financial Professional
You can verify your broker's disciplinary history by
checking the Central
Registration Depository (CRD). Either your state securities
regulator or FINRA can provide you with CRD information.
Your state securities regulator may give you more information
from the CRD than FINRA, especially when it comes to investor
complaints, so you may want to check with them first.
You'll find contact information for your state securities
regulator on the website of the North
American Securities Administrators Association. To
contact FINRA, visit FINRA's
BrokerCheck website, or call them toll-free at (800)289-9999.
You can find out about investment advisers and whether
they are properly registered by reading their registration
forms, called the "Form
ADV." You can view an adviser's most recent
Form ADV online by visiting the Investment
Adviser Public Disclosure (IAPD) website. At
present, the IAPD database contains Forms ADV only for
investment adviser firms that register electronically
using the Investment
Adviser Registration Depository. You can also
get copies of Form ADV for individual advisers and firms
from the investment adviser, your state
securities regulator, or the SEC, depending
on the size of the adviser.
- How long has
your firm been in business? How many arbitration awards have
been filed against your firm?
- What training
and experience do you have? How long have you been in the business?
What other firms have you been registered with? What is the
status of those firms today?
- Have you personally
been involved in any arbitration cases? What happened?
- What is your
- Describe your
typical client. Can you provide me with some names and telephone
numbers of your long term clients?
- How do you get
paid? By commission? Amount of assets you manage? Another method?
- Do I have any
choices on how to pay you? Should I pay you by the transaction?
Or a flat fee regardless of how many transactions I have?
- Do you make
more if I buy this stock (or bond, or mutual fund) rather than
another? If you weren't making extra money, would your recommendation
be the same?
- Are you participating
in a sales contest? Is this purchase really in my best interest,
or are you trying to win a prize?
- You've told
me what it costs me to buy this stock (or bond, or mutual fund);
how much will I receive if I sell it today?
- Where do you
send my order to be executed? Can we get a better price if we
send it to another market?
- If your financial
professional changes firms, ask: Did they pay you to change
firms? Do you get anything for bringing me along?
the Progress of Your Investments:
- How frequently
do I get statements? Do I understand what the statement tells
- Is the return
on my investment meeting my expectations and goals? Is this
investment performing as I was led to believe?
- How much money
will I get back if I sell my investment today?
- How much am
I paying in commission or fees?
- Have my goals
changed? If so, are my investments still suitable?
- What criteria
will I use to decide when to sell?
How to Handle
Act promptly! By
law, you only have a limited time to take legal action. Follow
these steps to solve your problem:
- Talk to your
financial professional and explain the problem. Where is the
fault? Were communications clear? Refer to your notes. What
did the financial professional tell you? What do your notes
- If your financial
professional can't resolve your problem, then talk to the financial
professional's supervisor (which, for brokers, is often the
firm's branch manager).
- If the problem
is still not resolved, write to the compliance department at
the firm's main office. Explain your problem clearly, and how
you want it resolved. Ask the compliance office to respond to
you within 30 days. If you're still not satisfied:
- Send us your
complaint by using our online complaint form or
you can reach us as follows:
and Exchange Commission
Office of Investor Education and Advocacy
100 F Street, N.E.
Washington, D.C. 20549-0213
At the SEC, we
will research your complaint, contact the firm or person you have
complained about and ask them to respond to your specific complaint
or question. Sometimes our intervention yields a satisfactory
result. If these steps don't work, you may need to take legal
action on your own. We can send you information on mediation and
arbitration, and suggest how to locate a lawyer if you need one.
When you ask these questions, write down the answers
you receive and what you decided to do. If something goes
wrong, your notes can help to establish what was said.
Let your financial professional know you're taking notes.
They'll know you're a serious investor and may tell you
more. Use our form for taking
notes when you speak to your financial professional.
For more information
on how to invest wisely, ask for our publications:
Advice From Your Securities Industry Regulators, Protect Your Money: Check
Out Brokers and Investment Advisers, and Invest Wisely: An Introduction
to Mutual Funds. You can also get other SEC publications online
or by calling our toll-free publications line at (800) SEC-0330.