21 Essential Questions You Should Ask Your Stock Broker Today (Before It’s Too Late!)

Are you working with a stockbroker but unsure if they’re truly acting in your best interest? You’re not alone! Many investors hand over their hard-earned money without asking the right questions and end up paying hidden fees or receiving advice that benefits the broker more than themselves.

I’ve been researching investment advisors for years, and I’m shocked at how many people don’t know what questions to ask Let’s fix that problem today with this comprehensive guide on what to ask your broker.

Why Asking Questions Matters

According to the SEC, “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.”

The SEC emphasizes that a good financial professional will welcome your questions, no matter how basic They know that an educated client is an asset, not a liability They would rather answer your questions before you invest than face your anger and confusion later.

The 21 Critical Questions You Should Ask Your Broker

Questions About Conflicts of Interest

1. What are your or your firm’s potential conflicts of interest regarding incentives to sell particular funds or products?This direct question gets right to the heart of the matter. A good advisor should provide a thorough, transparent answer

2. What percentage of your total income comes from commissions versus fees?
   Remember, incentives drive behavior. If most of their income comes from commissions, they might be more motivated to sell products than provide objective advice.

3. Do you receive soft-dollar money from financial-services companies you do business with?
   These are sneaky payments made by mutual funds to service providers “in-kind” by passing along valuable business to the brokerage.

4. How much do you receive in revenue-sharing payments from your preferred mutual fund partners?
   As a follow-up, ask if this is fully disclosed on their website or promotional materials.

5. Do you, or other advisors at the same firm, get rewarded with trips and other perks for selling certain investment products?
   This reveals non-monetary incentives that could influence their recommendations.

Questions About Fees and Compensation

1. What is the total compensation you have received from our relationship since first working together?
   This one might be scary to ask, but the answer will be enlightening!

2. What balance is the AUM fee charged on?
   “Beginning of quarter,” “end of quarter,” and “highest value in quarter” are all possible responses. The third one ensures the greatest cut for your broker.

3. Do you have me invested in any mutual funds with 12b-1 fees?
   These are kickbacks a traditional mutual fund pays to your broker. If the answer is “yes,” ask why they’re still using these funds instead of lower-cost ETFs.

4. Do you discount your AUM fee to reflect my cash balance?
   Parking cash doesn’t require any active management decisions, but it can pad the AUM upon which your bill is based.

5. Do you reduce your AUM fee when you use high-fee active mutual funds?
   You shouldn’t be double-charged for management fees.

6. Do you charge an extra hourly rate if I take up more than a certain amount of your time?
   If yes, ask how much and whether it’s withdrawn from your account or billed separately.

7. What are the various loads on the funds you sell?
   Load fees are silent killers of your long-term returns, especially for modest portfolios.

8. What percentage of the load fees go to you, and what percentage goes to your company?
   This reveals the precise commission your advisor personally earns.

Questions About Specific Investment Recommendations

1. Why do you recommend an in-service distribution?
   If you’re ever asked to do an in-service distribution (a rollover to an IRA while still employed), make sure you understand why. Often the motivation is simply to get more assets under management.

2. Does this investment match my investment goals? Why is this investment suitable for me?
   The SEC recommends asking this to ensure the broker is considering your personal situation.

3. How will this investment make money? What specifically must happen for this investment to increase in value?
   Understanding the mechanics of how an investment works helps you assess risk.

4. What are the specific risks associated with this investment? What is the maximum I could lose?
   According to the SEC, you should understand the effects of changing interest rates, economic recession, high competition, or stock market fluctuations.

Questions About Performance and Monitoring

1. How does the total fees and sales charges for your most popular funds compare with the Vanguard S&P 500 index fund?
   This helps you understand the opportunity cost of working with this advisor.

2. How much interest do I receive on cash balances held in my account?
   You should be earning a competitive rate on uninvested cash.

3. How has this fund performed over the long run? Where can I get an independent evaluation of this fund?
   For mutual fund recommendations, the SEC suggests getting third-party validation.

4. Will you fully disclose these conflicts of interest, as well as any others we may have missed, including upfront compensation, in writing for me?
   If they’re truly acting in your best interest, this shouldn’t be a problem.

How to Track Your Investments

The SEC recommends asking these questions to monitor your investments:

• How frequently do I get statements? Do I understand what the statement tells me?
• Is the return on my investment meeting my expectations and goals?
• 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?

Red Flags to Watch For

When talking with your broker, watch out for these warning signs:

• Vague responses or deflections when asked about compensation
• Claims that they “beat the market” consistently
• Promises of specific performance returns (no one can predict the future)
• Pressure to make quick decisions without time to think
• Reluctance to provide written disclosure of fees and conflicts

What To Do If Problems Arise

If you have concerns, the SEC recommends these steps:

1. Talk directly to your financial professional and explain the problem
2. If unresolved, speak with their supervisor (often the branch manager)
3. Write to the compliance department at the firm’s main office
4. If still unsatisfied, contact your state securities administrator or the SEC’s Office of Investor Education and Advocacy

Calculate Your True Costs

Once you’ve gotten answers to all these questions, add up the total cost of your broker’s service and divide by the total value of your investments. This gives you your true Assets Under Management (AUM) fee.

While the average stated AUM fee is 1-2%, many investors are shocked to learn their actual costs are much higher when all fees and commissions are factored in.

My Final Thoughts

I’ve seen too many people lose money because they didn’t ask these questions upfront. Your financial future is too important to leave to chance! Remember, a broker who’s truly working in your best interest will welcome these questions.

As the SEC says, “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.”

So grab a pen and paper, schedule a meeting with your broker, and start asking these critical questions today. Your future self will thank you!

Have you already asked your broker some of these questions? What was their response? I’d love to hear your experiences in the comments below!