On several occasions I have been involved in arbitration hearings to settle disputes between municipal bond investors and brokers.

The process begins when an aggrieved investor contacts his broker's firm to explain the problem and ask for some type of financial restitution for a particular grievance.

If the investor is unable to persuade the securities firm that he has been wronged, he may then write to the Municipal Securities Rulemaking Board (MSRB), submitting the case and requesting a binding arbitration hearing. This means that both the investor and the brokerage firm agree to submit to the findings of the hearing panel, whatever the decision.

The panel consists of three members who have backgrounds in the municipal business or legal profession, plus a representative from the MSRB to ensure that the investors' rights are protected and that the hearing is conducted properly. The investor (or claimant) attends with his or her lawyer (if so desired), while the brokerage firm (respondent) is represented by the accused broker and an attorney.

In all of the hearings I've been involved in, the panel has bent over backward to see that the investor is able to present his case replete with evidence or witnesses and obtain a fair hearing. The testimony is presented, both sides question each other, and the members of the panel are free to question the claimant and the respondent.

Following the hearing, the panel discusses the issues and renders its binding decision. It appears to be a fair and equitable way to settle a dispute.

But one factor comes through from these hearings: The lack of knowledge or understanding that much of the public has about investing, especially in bonds. If ever there was a piece of advice to offer the public, it would be to understand the security that you are buying, to know what you can expect from that security, and to know your tolerance for risk -- that is, how much money you can afford to lose.

Most investors have problems because they become greedy. Consequently, they are inclined to take bigger risks in hope of obtaining bigger rewards. But the greater the risks, the greater the rewards -- but also the greater the potential for disaster.

Investing is a long-term proposition, and investors should have a long-term view of investing. Many investors buy bonds with high yields oblivious to the credit behind the bond. Equally bad, they may buy a bond without understanding the various features on that bond -- i.e., call features, credit ratings, issuer, purpose, etc.

In addition to knowing about the security in which you are investing, know your broker. How long have they been in the business? Do they understand bonds? If not, find one that does.

Do you understand the investment that your broker is recommending? If not, find out or forget it.

Do you know what you want out of your investments? Have you clearly conveyed to your broker what your investment objectives are? If not, do so! You cannot lay all of the blame on a broker when something goes wrong.

Most brokers are reputable and hard-working, and it behooves you to find a good one. But like anything else, you have to ask questions, because even a good broker can make an honest mistake.

The Treasury on Wednesday will offer a two-year note in $5,000 minimums. On Thursday, a five-year note will be offered in $1,000 minimums. They should return 7.20 percent and 7.75 percent, respectively.

James E. Lebherz has 28 years of experience in fixed-income securities.