What Your Broker Will Never Tell You

Stockbrokers are viewed by the investment community as asset experts, professionals educated in economics, corporate finance and tax law. They are assumed to be investment gurus, individuals highly skilled in seeking out and navigating the best possible avenues for accumulating wealth.

The truth is that stockbrokers are not even required to possess a college degree in order to embark on a career making investment recommendations to the general public. Stockbrokers are not required to meet minimum net worth requirements, to satisfy any sort of residency or internship periods, or to even demonstrate actual firsthand experience investing their own money before going to work to invest yours.

The requirements to become a licensed stockbroker are minimal at best. They must pass the Series 7 examination, a supervised test consisting of 300 questions, 70% of which must be answered correctly. According to accepted scholastic interpretation, this means that your stockbroker can score a C- and still legally advise you how to make stock, bond and mutual fund purchases.

Because the securities industry possesses a rapid turnover rate, firms perpetually search for trainees, individuals with some degree of sales ability that they can sponsor for the Series 7. Firms typically require that applicants pay approximately $600 to cover the cost of registration and study materials.

Many "crash courses" are available to help applicants achieve the required 70% on their Series 7 in the shortest possible time. Trainees may also study independently with the aid of computer programs that offer mock examinations comprised of questions from old examinations. Regardless, it is commonplace for newcomers to the securities industry to pass the Series 7 and be on the phone in less than 60 days.

Once they pass the Series 7, the industry's self-regulatory organization, the National Association of Securities Dealers or the NASD, performs a criminal background check on the applicant. As long as no felony charges are discovered the applicant becomes a Registered Representative and is legally permitted to get to work. It's that simple. 

As scary as it sounds, the individual who sold you your car or shingled your roof in July can be your stockbroker by September. 

The rookie stockbroker is then trained to overcome client objections by memorizing "rebuttals" and required to make upwards of 300 phone calls a day to prospect for clients. "Cold calling" as it is known throughout the securities industry, has gained a notorious reputation over the years. With the recent advent of the national "No Call" list investors are afforded some protection against unscrupulous sales practices, but abuses still occur. 

Stockbrokers are primarily compensated on a "transactional" basis, meaning that they are only paid when buying or selling stocks for their clients. This is the fundamental conflict between the financial objective of the client and the financial objective of their broker.

There are many ethical and professional registered representatives in the industry today, but it is the unprincipled minority that perpetuates the stereotype of the fast-talking, manipulative stockbroker. 

Remember that stockbrokers...

  •  - Are not required to possess a college degree
  •  - Can be licensed in less than two months
  •  - May have no investment experience
  •  - Are not required to meet net worth requirements
  •  - Are compensated when buying and selling stocks
 - Are trained to memorize dialogue to overcome client objections


If you would like to know more about your stockbroker, contact us now and we will perform a background check free of charge. Be ready to provide your broker's full name as well as the name of their employing firm.

Why Us?

    Impact Finance is a securities, arbitration, and mediation consulting firm providing complete support to securities attorneys as well as case analysis for individual investors who have lost money due to bad advice or investments.


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