How Do I Choose a Stock Broker? The Referral

choose stock broker referralsPeople often ask me, “how do I choose a stock broker,” and I tell them, “the same way porcupines mate, very carefully.” While many things have changed or evolved in the securities industry, how you obtain a broker has remained relatively unchanged.  Usually, you get a stock broker in one of four ways:


  1. through a Referral
  2. responding to a Cold Call
  3. attending a Seminar
  4. a member of an Affinity Group

This article is Part 1 of a 4 part series, where I’ll cover each of these in more detail.

Remember, when choosing a broker, by whatever method, look for someone who understands you and your specific needs, whom you can understand and not feel intimidated by and who will answer your questions in writing versus talking over the phone. None of this will guarantee a good relationship, but using this methodology will increase your chances for success.

The Referral

This is the most common method and has been for many years.  You have come into a lump sum of money, or you want to start a systematic investment plan, or someone told you about a “can’t miss” stock, and you don’t have a broker. What to do? Well, you may not know a broker but chances are you know someone who does. A family member, a close friend or a co-worker; even a stranger you meet in a social setting who can’t help talking about how great his investments are doing. The point is someone you know or meet will have or know a stock broker, and will be happy to give you his or her name and number. And most people feel more comfortable with this “stamp of approval” way of getting a broker.

When dealing with an unfamiliar situation or experience most of us look for company as opposed to charting a new course ourselves.  Obtaining a referral satisfies that need. Even though it is your money (and your objectives and risk tolerance may be completely different from the person giving you the name and number of a broker), you can take comfort in the fact that you are not alone. Someone else you know is dealing with this person.

The reality is, in most cases, you have no idea what, if any, due diligence this person did in selecting the stock broker now referred to you. Maybe it was a referral in the first place. Maybe it is a friend or relative that the person feels compelled to do business with. Maybe the broker was found through one of the other three methods listed above. The point is, you need to do a little digging and due diligence yourself.

  • Is the person giving the referral similar to you? What this means is: does this person have similar investment objectives and tolerance for risk as you?
  • Is the person in a similar place in life as you?
  • Is the person trying to accumulate wealth or preserve it?
  • Is the person more interested in growth or income?
  • Does the person take an active role in his/her investments or does he/she sit back and let the broker run things?

These are important questions because even though in theory a stock broker can be all things to all people, in reality, most brokers have a certain investment philosophy and mindset and tend to cultivate clients with similar philosophies and mindsets. This is not a hard and fast rule, but many claimants’ attorneys have noticed that brokers with an aggressive mindset do not do well with or for clients that do not share that mindset, and that troubles arise when a conservative client is recommended to a broker who does not share that affinity for low risk.

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