Investors also should read brokerage statements regularly and make sure they understand them. We believe strongly here that an educated investor is absolutely the best defense against all kinds of problems, she said. Despite rules, brokers obligations can get fuzzy Your broker is supposed to know you, to understand your financial needs and to invest accordingly. State and federal laws and the rules of the New York Stock Exchange and the National Association of Securities Dealers require brokers to take into account a client s age, tolerance for risk and financial goals when recommending investments. A broker s obligation gets fuzzier, however, when the client is requesting certain investments or strategies.
Wise brokers warn clients in writing if they believe a strategy is too risky.
Some even turn clients away. But in an industry that values a broker s ability to bring in business over almost everything else, that can be difficult to do. There s no line that can be drawn. Every single case is different, said Bruce Lewitas, a Chicago lawyer who defends brokers in arbitrations. On the one extreme, you have the little old lady with no investment experience put into a portfolio consisting of 100 percent technology using margin.