Check Out Brokers and Advisers 

Federal or state securities laws require brokers, advisers, and their firms to be licensed or registered, and to make important information public. But it's up to you to find that information and use it to protect your investment dollars. The good news is that this information is easy to get, and one phone call may save you from sending your money to a con artist, a bad broker, or disreputable firm. 

Before you invest, make sure your brokers, investment advisers, and investment adviser representatives are licensed to sell securities. Always check and see if they or their firms have had run-ins with regulators or other investors.  

401k Tip---

According to Southern California-based (401k) Enginuity (www.401kenginuity.com), twenty-year veteran in developing and running 401(k) administration and 401(k) software and recordkeeping systems, the Internet will be the primary delivery system for 401(k)s by 2007. Many web-based 401(k) plans will run on administration and recordkeeping platforms that plan providers will outsource to 401k specialists and 401k Application Service Providers (ASP).

The advantages of web-based online 401(k) plans are obvious to today's workers, and include use conveniences, real-time monitoring and reporting, and instant re-allocation of their retirement assets. The internet has also dramatically reduce the cost of 401(k) plan administration, saving plan sponsor 50% or more in ongoing fees and costs when compared to the older traditional labor-intensive plans. Outsourcing of 401(k) functions by plan providers will extend the trend towards lower cost, high-quality 401(k) products.

401(k) plan providers of all types, financial institutions including banks, insurance companies, brokerages, mutual fund companies, credit unions, and third-party administrators, are now actively outsourcing 401(k) administration and recordkeeping tasks to 401(k) ASPs --- vendors such as 401k Enginuity, whose sole function is to maintain, updated and supervise software-based 401(k) administration and recordkeeping systems on behalf of plan providers. 401(k) ASP vendors are responsible for all routine day-to-day 401(k) recordkeeping and administration functions, thus allowing the plan providers to reduce internal staff, eliminate the expense and complications of licensing, housing and running hardware and 401(k) administration software in-house. Plan providers can refocus and concentrate their efforts on to the needs of their plan sponsors and plan participants, and rely upon the outsourced ASP 401(k) vendor for the recordkeeping and technical "backbone" supporting providers' Internet-based plans. It is inevitable that some of this 401(k) outsourcing to ASPs will include secondary outsourcing of certain non-critical low-level routine day-to-day tasks to non-US locations, where labor costs are less yet the expertise is abundant.

The CRD is a computerized database that contains information about most brokers, some investment advisers, their representatives, and the firms they work for. For instance, you can find out if brokers are properly licensed in your state and if they have had run-ins with regulators or received serious complaints from investors. You'll also find information about the brokers' educational backgrounds and where they've worked before their current jobs.

You can ask either your state securities regulator or the National Association of Securities Dealers (NASD) Regulation, Inc. to provide you with information from the CRD. Your state securities regulator may provide more information from the CRD than the NASDR, especially when it comes to investor complaints, so you may want to check with them first. You can find out how to get in touch with your state securities regulator through the North American Securities Administrators Association, Inc.'s Web site. You can go to NASD Regulation, Inc.'s Web site to get CRD information or call them toll-free at (800) 289-9999. 

Some investment advisers and their representatives are on the CRD because they are also brokers, but many are not listed there. To check out investment advisers and their representatives, you'll have to talk with your local state securities regulator and get a copy of their Form ADV.

People or firms that get paid to give advice about investing in securities generally must register with either the SEC or the state securities agency where they have their principal place of business. Investment advisers who manage $25 million or more in client assets must register with the SEC. If they manage less than $25 million, they must register with the state securities agency in the state where they have their principal place of business.

Some investment advisers employ investment adviser representatives, the people who actually work with clients. In most cases, these people must be licensed or registered with your state securities regulator to do business with you. So be sure to check them out with your state securities regulator. 

To find out about advisers and whether they are properly registered, read their registration forms, called the "Form ADV." The Form ADV has two parts. Part I has information about the adviser's education, business, and whether they've had problems with regulators or clients. Part II outlines the adviser's services, fees, and strategies. Before you hire an investment adviser, always ask for and carefully read both parts of the ADV. If an investment adviser won't give you Part I of the ADV, don't do business with them. RRP

You can get copies of Form ADVs from the investment adviser, your state securities regulator, or the SEC, depending on the size of the adviser. You can find out how to get in touch with your state securities regulator through the North American Securities Administrators Association, Inc.'s Web site. If the SEC registers the investment adviser, you can get the Form ADV at a cost of 24 cents per page (plus tax and postage) from the SEC at

Office of Public Reference

450 5th Street, NW, Room 1300

Washington, D.C. 20549-0102

phone: (202) 942-8090

fax: (202) 628-9001

e-mail: publicinfo@sec.gov

Once you've checked out the registration and record of your broker, adviser, or their firm, there's more to do. Here are a few questions to get your started, but be sure to read our publications: Get the Facts, Invest Wisely: Advice from your Securities Regulators, and Ask Questions.  

• What experience do you have, especially with people in my circumstances?
• Where did you go to school? What is your recent employment history?
• What licenses do you hold? Are you registered with the SEC, a state, or the NASD?
• What products and services do you offer?
• Can you only recommend a limited number of products or services to me? If so, why?
• How are you paid for your services? What is your usual hourly rate, flat fee, or commission?
• Have you ever been disciplined by any government regulator for unethical or improper conduct or been sued by a client who was not happy with the work you did?
• For registered investment advisers, will you send me a copy of both parts of your Form ADV?

 

For more information/comments: comments@401kbrokers.com