To get a broker, decide which kind of broker your transaction actually calls for, verify that person’s license and disciplinary history in the appropriate public database, get a clear answer on how they are paid, and read the account or engagement agreement carefully before you sign it. That sequence applies whether you are opening a securities account, buying a home, or shopping for insurance. The steps below walk through how to get a broker for each of those situations, with more depth on the securities side because federal regulation is heaviest there.
Figure Out Which Broker You Need
“Broker” covers at least three separate professions, each with its own regulator and its own license. Hiring the wrong type wastes weeks and can leave you working with someone who has no authority to complete your transaction.
- A securities broker-dealer handles stocks, bonds, mutual funds, and other securities. Firms and their representatives register under the Securities Exchange Act of 1934 and must be members of the Financial Industry Regulatory Authority.1Legal Information Institute (LII). Securities Exchange Act of 1934
- A real estate broker handles property sales, purchases, and leases. Licensing runs through each state’s real estate commission, and requirements vary by state.
- An insurance broker or producer helps you shop for and bind policies. State departments of insurance license them, and separate credentials often apply to different lines (life, health, property and casualty).
Within securities, there is another choice to make before you start calling firms. A full-service broker provides research, portfolio management, and personal recommendations, and charges accordingly through commissions or asset-based fees. A discount or execution-only broker just processes trades and leaves the decisions to you. Paying full-service fees for a relationship you never use is a common and expensive mistake.
Insurance has a parallel split. A captive agent sells for one carrier and knows that carrier’s products deeply. An independent broker works with several carriers and can pull quotes from across the market. Which is right depends on whether you want breadth of options or depth on a single company.
Understand How the Broker Gets Paid
Compensation is where most conflicts of interest live, so ask about it early. The single most useful question in any first conversation is: how do you get paid on this transaction?
Securities brokers typically earn money in one or more of these ways:2U.S. Securities and Exchange Commission. Investor Bulletin – How to Select an Investment Professional
- Transaction-based commissions on each buy or sell, which create an incentive to trade more often.
- Markups when you buy bonds or other debt securities, and markdowns when you sell them, which are not always broken out on your confirmation.
- 12b-1 fees paid out of a mutual fund’s assets to compensate the selling broker, which reduce your returns without appearing on a trade confirmation.3U.S. Securities and Exchange Commission. Distribution and/or Service (12b-1) Fees
- Wrap or bundled fees, a single annual percentage of your portfolio that covers advice, trading, custody, and administration.
Real estate brokers work almost exclusively on commission, usually a percentage of the sale price split between the buyer’s and seller’s sides. Insurance brokers earn commissions from the carrier whose policy you buy, at rates that vary by line of coverage. In each case the person selling you the service should be able to explain their compensation plainly. If they cannot, that itself is information.
Check the License and Disciplinary Record
Verifying credentials before you sign anything is the highest-value step in the whole process, and it costs nothing.
Securities Professionals
FINRA’s BrokerCheck is a free public database covering every registered broker-dealer and individual representative. A BrokerCheck report shows ten years of employment history, licensing qualifications, and a disclosure section covering customer disputes, regulatory actions, terminations, and certain criminal and financial matters.4FINRA. About BrokerCheck Every registered securities professional carries a Central Registration Depository number that follows them across firms.5FINRA. Central Registration Depository (CRD)
If the person you are considering is an investment adviser rather than a broker, use the SEC’s Investment Adviser Public Disclosure database to review the firm’s Form ADV, which discloses services, fees, conflicts, and disciplinary history.6U.S. Securities and Exchange Commission. Investment Adviser Public Disclosure (IAPD) Both databases are accessible through Investor.gov.
A single disclosure does not automatically rule someone out. Complaints happen in every industry, and many resolve in the broker’s favor. Look for patterns instead: multiple settled complaints, a regulatory sanction or bar, terminations for cause, or criminal disclosures. A resolved complaint from ten years ago reads very differently than three pending arbitrations and a firm termination in the last two. If something on the report concerns you, ask the broker about it directly and compare their explanation to what the record says.
Real Estate and Insurance Professionals
State real estate commission websites let you confirm whether a real estate broker’s license is active, expired, or subject to discipline. State department of insurance portals do the same for insurance producers. In both cases you search by name or license number and confirm the credential is current.
A Word on Professional Designations
Letters like CFP or CFA appear after many brokers’ names, but FINRA does not approve or endorse any professional designation.7FINRA. Certified Financial Planner (CFP) Some designations require years of study, exams, and continuing education. Others can be earned in a weekend. Before treating a designation as a signal of competence, look it up on FINRA’s Professional Designations page and see what it actually requires.2U.S. Securities and Exchange Commission. Investor Bulletin – How to Select an Investment Professional
Gather What You’ll Need to Open the Account
Before a securities firm can open an account for you, federal anti-money-laundering rules require identity verification. Under the USA PATRIOT Act’s Customer Identification Program, every broker-dealer must collect at minimum your name, date of birth, residential address, and taxpayer identification number, which for most people is a Social Security number.8U.S. Securities and Exchange Commission. Anti-Money Laundering (AML) Source Tool for Broker-Dealers The firm will then verify your identity, generally through a government-issued photo ID like a driver’s license or passport.9eCFR. 31 CFR 1020.220 – Customer Identification Program Requirements Some firms ask for supporting documents like utility bills; the regulation gives firms flexibility in how they confirm identity and address.
FINRA rules require the firm to build a profile of your financial situation. Expect to disclose annual income, liquid net worth, total net worth, investment objectives, risk tolerance, time horizon, and investment experience.10FINRA. FINRA Rule 4512 – Customer Account Information Answer these accurately. The broker uses this profile to judge whether recommendations fit you, and shading the numbers to look more sophisticated undercuts the protections the rules exist to give you.
Most firms package all of this into a single new account application, completed online or in person.11FINRA. New Account Application Template Customization For real estate, the equivalent opening paperwork is an agency disclosure that names who the broker represents, or a listing agreement that authorizes the broker to market your property. Insurance applications are carrier-specific but similarly gather personal and financial details tied to the coverage.
Firms also now try to obtain a trusted contact person when you open a securities account. This person gets no trading authority. They are a safety net the firm can reach out to if it cannot contact you or suspects financial exploitation.12U.S. Securities and Exchange Commission. Notice of Filing of a Proposed Rule Change to Adopt FINRA Rule 2165 Naming one is worth doing, particularly for older investors.
One boundary worth naming: if the broker suggests opening a margin account, that is a different animal. Margin lets you borrow money to buy securities, and you can lose more than you deposited. The firm can sell your holdings without asking you first if the account falls below certain levels, and under most margin agreements the firm does not have to wait for you to respond to a margin call before liquidating.13U.S. Securities and Exchange Commission. Understanding Margin Accounts Read the margin agreement line by line, or decline the feature until you are sure you want it.
Know the Standard Your Broker Owes You
Since June 2020, securities broker-dealers have had to follow Regulation Best Interest when making recommendations to retail customers. Reg BI requires the broker to act in your best interest at the time of the recommendation and to avoid placing the firm’s financial interest ahead of yours.14Legal Information Institute. Regulation Best Interest (Reg BI) It obligates the firm to disclose material fees and conflicts in writing, to exercise reasonable care in what it recommends, to identify and mitigate conflicts through written policies, and to maintain compliance procedures backing all of that.
Reg BI is stricter than the older “suitability” standard, which only asked whether a recommendation was suitable. It is still not a full fiduciary duty. Registered investment advisers owe a continuous fiduciary obligation to act in your best interest at all times. Brokers owe best interest only at the moment of a recommendation. That distinction matters when you are choosing between hiring a broker-dealer and hiring an investment adviser.
Every broker-dealer must also give you a Form CRS relationship summary at or before their first recommendation. It covers services, fees, conflicts, and any reportable disciplinary history, and it is required to be written in plain English.15U.S. Securities and Exchange Commission. Form CRS Relationship Summary – Amendments to Form ADV Read the CRS from each firm you are comparing side by side. The document exists to make that comparison possible.
Read the Agreement Before You Sign
Once you have chosen a broker and completed the application, the agreement lands in front of you. A few provisions buried in the middle can significantly affect your rights, and most people skim past them.
The Arbitration Clause
Nearly every securities brokerage agreement contains a predispute arbitration clause, and FINRA requires that the clause be highlighted and preceded by specific disclosures. Signing gives up your right to sue the firm in court, including a jury trial. Arbitration awards are generally final and hard to appeal. Discovery is more limited than in court. Arbitrators do not have to explain their reasoning unless all parties request an explained decision at least 20 days before the first hearing.16FINRA. FINRA Rule 2268 – Requirements When Using Predispute Arbitration Agreements for Customer Accounts
None of that makes arbitration inherently unfair. FINRA’s forum handles thousands of disputes and many customers prevail. Understand the tradeoff before signing. One protection worth knowing: if you file a class action in court, the firm cannot force you into individual arbitration on those class claims until the class certification question is resolved.
Fees and Activation
The agreement or its accompanying disclosures will list account maintenance charges, inactivity fees, wire transfer costs, margin interest, and any fees for optional services. Most major online brokerages have eliminated per-trade commissions on stocks and ETFs, but options, mutual funds, and account transfers still vary widely. Pay particular attention to the outgoing account transfer fee, which can run $50 to $150. You will meet that fee if you ever decide to leave.
Most agreements are signed electronically. Online brokerages often activate accounts the same business day. Firms handling trusts, corporate accounts, or margin may take longer. Once the firm countersigns, the relationship is active and the obligations under Reg BI, suitability rules, and the account terms all take effect.
If You Ever Want to Switch
Hiring a broker is not a permanent decision. If the fit turns out to be wrong, the Automated Customer Account Transfer Service lets you move securities and cash from one firm to another without selling your positions and starting over. You open an account at the new firm, submit a Transfer Instruction Form, and the receiving firm routes the request to your current firm through ACATS.17FINRA. FINRA Rule 11870 – Customer Account Transfer Contracts The whole process usually takes about a week when nothing gets flagged. Knowing that the exit exists is worth remembering while you are still deciding who to sign with.