This lesson is general education about U.S. personal finance, not financial, tax or investment advice. Tax rules and limits change every year; check IRS.gov or a qualified professional for your situation.
What you’ll learn
- Look up brokers on FINRA BrokerCheck and investment advisers on the SEC’s adviser search, both free.
- SIPC protects customers of failed member firms up to $500,000, including $250,000 in cash, but not against market losses.
- Firms must give you a short relationship summary, Form CRS, explaining their services, fees and conflicts.
- Guaranteed high returns and pressure to act fast are classic signs of fraud.
Before you hand money to anyone to invest, check who they are. U.S. regulators publish the records you need, free of charge.
Step 1: Look them up
- FINRA BrokerCheck shows registered brokers and brokerage firms, their employment history and any disciplinary actions or customer complaints.
- The SEC’s Investment Adviser Public Disclosure site covers registered investment advisers.
- Investor.gov, run by the SEC, lets you search both from one place.
Someone who sells investments but doesn’t appear in these databases is a serious red flag. Your state securities regulator can also confirm registration.
Step 2: Read Form CRS
Brokers and advisers that deal with retail investors must give you a relationship summary called Form CRS. It’s a few pages long and explains what services they offer, how they’re paid, and the conflicts of interest that come with that.
Worth knowing. Ask directly: “How will you be paid for this recommendation, and what will I pay in total each year?” A good professional answers that question plainly.
Step 3: Understand SIPC protection
If a brokerage firm that’s a member of the Securities Investor Protection Corporation (SIPC) fails, SIPC protects customers’ securities and cash up to $500,000, including up to $250,000 in cash.
SIPC doesn’t cover:
- losses because investments fell in value
- bad advice or poor investment choices
- investments in firms that aren’t SIPC members
Warning signs of investment fraud
- promises of high returns with little or no risk
- pressure to decide immediately
- unregistered sellers or investments
- requests to pay in cryptocurrency, gift cards or by wire to a personal account
When in doubt, wait. Real opportunities survive a few days of checking.
Most people’s first investments sit inside a 401(k) or an IRA. If you’re choosing funds yourself, index funds in plain English covers the basics.
Common questions
What’s the difference between a broker and an investment adviser?
Brokers buy and sell investments for you and must act in your best interest when making recommendations. Investment advisers give ongoing advice for a fee and owe you a fiduciary duty. Many professionals are both.
Is my brokerage account FDIC-insured?
Generally not. FDIC insurance covers bank deposits. Cash swept into a partner bank may be FDIC-insured; check your account’s terms.
Where do I report a suspected investment scam?
You can submit a tip to the SEC, contact FINRA, or report it to your state securities regulator.