Investing your money in the stock market assumes some risk. Knowing what to look for in a stock broker may help minimize your investment risk. Similarly, certain mistakes in choosing or using a broker may increase your investment risk.

Avoid the following mistakes when you are choosing or working with a stock broker, and you may have a better investing experience and assure that your investments meet your objectives.

Mistake #1--  Choosing a Stock Broker Whose Philosophy or Risk Tolerance Varies Widely from Yours

Before you commit to working with a particular stock broker, interview the person and get familiar with his or her approach.

Find out about the stock broker’s risk tolerance. If you are conservative regarding investing, and your broker is an aggressive investor, chances are:

-         You may not be happy with the stock broker’s choices of investments or approaches to investing. 
-        Your broker may recommend investments that do not meet your investment objectives.

To get familiar with the idea of risk tolerance, check out this assessment tool at: http://www.nmfn.com/tn/global--forms--risk_calc_pg

and this article at http://articles.moneycentral.msn.com/Investing/SimpleStrategies/HowToAssessRiskTolerance.aspx.

Understanding risk tolerance should give you an idea of:

- How much risk you are or are not comfortable with regarding investing
- What your stock broker’s choices or actions say about his or her risk tolerance regarding investing

Mistake #2--  Paying for Stock Broker Advice You May Not Need

When you buy stock, you do so with a person who acts as intermediary between you and the stock market – the stock broker.

However, there are various types of stock brokers:

-       The full-service stock broker charges you a higher commission. You are paying for the stock broker’s advice and knowledge. 
-         The discount stock broker charges a lower commission, relative to the full-service broker.

If you have the desire to do your own research, you may benefit from using a discount broker, rather than paying for advice from a full-service stock broker.

A full-service broker may also specialize only in particular types of stocks. Do your research first so that you have a basic understanding of the kinds of stocks you want to invest in. Then decide whether you need to pay a broker for knowledge or whether you have the time and the desire to research your own choices. 

-        TradeWiser.com lists and compares online discount stock brokers. 
-        Kiplinger.com outlines what a full-service broker can do for you, and gives you some good criteria for choosing one.

Mistake #3--  Using a Stock Broker Who Engages in Misconduct

Watch out for the following types of actions from your broker. These constitute stock broker misconduct:

-         The broker may recommend investments that do not match your objectives for investment (see Mistake #1).
-        The stock broker may recommend investments that are complex and may not fully explain these investments to you. 
-       The stock broker may trade in an excessive manner, for the sole purpose of creating commissions for himself or herself. This is called “churning.”
-         The stock broker may trade without permission from the customer. 
-       The stock broker may misrepresent investments or related information.

The links in the Additional Resources section below can help if you think you have been dealing with stock broker misconduct.

Mistake #4--  Using a Stock Broker with a Sales Agenda

How is your stock broker paid? Will your stock broker make more of a commission if he or she sells you certain products? You may want to ask these types of questions up front. The broker’s commission objectives may not match your investment objectives.

Mistake #5--  Failing to Understand Fee or Commission Schedules for Full-Service Brokers

Upon entering into a working agreement with a full-service stock broker, you need to be sure you understand the commission and fee schedules required for purchasing stocks. Here are some aspects to consider:

-         Ask for a commission schedule. This should clearly state the fees you will pay and when they are due.

-        Ask if an annual fee option is an alternative to paying a commission on every trade. A broker may be able to set up an option. This will also ensure that “churning” – unnecessary and excessive trading – does not take place. 

Additional Resources
-Howard M. Rosenfield Web site: Attorneys or mediators who specialize in stock broker fraud or misconduct http://www.stockbrokerproblems.com/about.html 

-Fortune Watch Web site:Thoughts on how to pick a stock broker, and why discount brokers may be an alternative way to invest: http://www.fortunewatch.com/how-to-pick-a-stock-broker 

-ArticlesBase.com Web site:More criteria for choosing a full-service or discount broker http://www.articlesbase.com/finance-articles/the-quick-and-easy-guide-to-choosing-a-stock-broker-439835.html