Investor Checklist

These steps can help you minimize the chances of being involved with a firm that becomes financially distressed:

 

  • Check if the brokerage firm is registered. Visit FINRA BrokerCheck or call FINRA at (888) 295-7422. Also contact your state securities regulator—to find yours, visit the North American Securities Administrators Association or call (202) 737-0900.
     
  • Check if the brokerage firm is a member of SIPC. If the brokerage firm is not a member of SIPC, there may be legitimate reasons why the firm is exempt from SIPC membership. Note that all introducing firms and carrying firms MUST be members of SIPC. In addition, remember that just because a firm is a member of SIPC, it does not mean that SIPC will make customers whole with respect to every loss. You can get more information about what SIPC does/does not cover from its website: www.sipc.org. In addition, you can search SIPC's Membership Database or contact its Membership Department at the address below to find out whether a firm is a member of SIPC:

    Securities Investor Protection Corporation
    805 15th Street, NW
    Suite 800
    Washington, D.C. 20005-2215
    phone: (202) 371-8300
     
  • Check the financial condition of the firm. You can get information about a firm's financial condition by going to the SEC's Company Filings Search page. Type in the name of the brokerage firm and click on the X-17A-5 filings. Then click on the scanned pdf documents.
     
  • Check whether your firm has private insurance beyond SIPC, and the amount of coverage. Ask what scenarios would trigger this protection to you, the customer.
     
  • Make payments only to firms that are registered with FINRA. NEVER use an abbreviated version of the brokerage firms name, spell out the full name of the brokerage firm. In addition, where you are dealing with an introducing firm that maintains a relationship with a clearing firm, FINRA recommends you make your check payable to the clearing firm. In addition, when dealing with a special products firm that does not maintain a clearing firm relationship, checks are usually made payable to the issuer of the product, and not the brokerage firm selling the product. Understand why you are making the check payable to a particular party. The prospectus, or offering memorandum, will usually provide a guide as to who the issuer is and to whom to make checks payable. Be very cautious when making checks payable to entities that are not registered or subject to regulation as your investments may not be covered if the firm with which you are dealing fails.
     
  • If you make a payment to any entity other than a SIPC member brokerage firm (such as to the issuer of the securities or to a bank escrow agent), check to make sure your funds are applied properly. Where possible, have your bank provide you with a copy of the front and back of such checks so you can check for improper endorsement and/or an assigning of the check to another party. Never make a payment to an individual sales representative.
     
  • Check your account statements and trade confirmations for accuracy and to determine who your clearing firm is. Ask your firm how often you can expect to receive your periodic account statements (most firms provide statements on at least a quarterly basis). If you do not receive a statement, contact your carrying firm to determine why. Be advised: The failure to provide statements may indicate the brokerage firm has gone out of business or is experiencing financial difficulty.