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Research pays before you lay money down

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By Jonathan Starkey
Special to The Washington Post
Sunday, November 15, 2009

With each tick higher in the market, more and more investors are working up the courage to get back in. But that's been hard for some who, burned by big losses and rattled by so many reports of financial scandal, still struggle with fundamental questions:

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Who to blame for past problems?

Who to trust with their money now?

Most people put a lot of faith in their broker, and that often works out well. But in the age of Bernie Madoff, wary investors may be looking for some reassurance.

The truth is they are largely left to fend for themselves. With a bit of time and widely available tools, many legal experts say investors can improve their chances of choosing wisely when selecting a financial adviser or broker.

"People go out and spend a ton of time researching what toasters they're going to buy," said Melanie Lubin, Maryland's securities commissioner. "But they don't spend time researching the person to whom they're going to turn over their money."

To help investors, the Securities and Exchange Commission has launched a new Web site aimed at individuals -- called of all things Investor.gov (http://www.investor.gov) -- which is loaded with tips for spotting scam artists. "Your net worth might make you a target for scams," the site, launched Oct. 22, warns. A graphic makes "scam" an acronym for "scheming, crafty, aggressive, malicious."

Investors have several options for researching brokers and advisers, some as simple as plugging a name into online databases. At the Financial Industry Regulatory Authority's BrokerCheck database tool (http://www.finra.org/brokercheck), people can search for information on 850,000 brokers and 17,000 brokerage firms. Records are pulled from the Central Registration Depository, a registration and licensing database for the securities industry, and include information about previous employment, disciplinary actions and customer complaints -- basically, just the sort of information that might steer you clear.

Information on brokers and investment advisers is also available by calling state securities regulators. State regulators can often pass on additional information from the depository that's not available on BrokerCheck, experts point out, particularly information related to customer complaints. Similar information on investment adviser firms is available at the Investment Adviser Public Disclosure site, http://www.adviserinfo.sec.gov.

And as people manage more of their finances online, it never hurts to meet a broker face-to-face, said Jay Cummings, the executive vice president at FINRA.

"There are easy things to do like check BrokerCheck. You can do that in the privacy of your home. But it's always good to look the guy or gal in the eye and ask him about his background, ask him if he has any disclosures," he said. "It's always nice to have that conversation, to really have an idea of who you're dealing with."

Investors who already handed over their money, only to see it squandered, can file a complaint with their brokerage firms or regulators, though recovering losses through those means alone is nearly impossible, experts say. They can also seek recourse in arbitration. In most cases, in fact, investors are required by agreements with their brokerage firms to resolve disputes outside of court in arbitration. (In Washington, Congress has taken up legislation that could end or limit the practice of requiring "mandatory arbitration," as it's called.)


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