When investors approach Dallas lawyer Richard Lewins about a dispute they have with their stockbroker, they know he has a unique perspective.
With 14 years under his belt in the brokerage industry — including stints as a broker, regional sales manager and compliance officer — Lewins feels pretty confident about how to represent aggrieved investors.
"I know how the sausage is made," he said.
Lewins said he decided to become a lawyer and represent investors because he didn't like how the brokerage industry treated clients.
"I had a branch manager tell me that there are three sides to a transaction — the customer, the broker and the firm," he said. "Two out of three have to make money. Well, figure that out."
He decided to package his knowledge and experience in a soon-to-be-published book titled "How to Keep From Going Broke With a Broker."
"There are lots of books on how to invest, what to invest in, when to invest, do-it-yourself investing and financial planning guides, but no book that says, 'OK, for whatever reason you are not going to do it yourself and you are going to enlist a broker to advise you. Here is what you need to know about that relationship,'" Lewins said.
He said investors typically find a broker several ways, including:
Referral — This is the most common method.
"When dealing with an unfamiliar situation or experience, most of us look for company as opposed to charting a new course ourselves," Lewins said. "Obtaining a referral satisfies that need."
But don't just take the good word of the person who referred you to the broker, he said.
For one thing, your investment objectives and risk tolerance may be completely different from those of the person who gave the referral.
"The reality is, in most cases, you have no idea what, if any, due diligence this person did in selecting the broker now referred to you," Lewins said. "The point is, you need to do a little digging and due diligence yourself."
Cold calling — Known as "smiling and dialing" in the old days, Lewins said, this is when you get an unsolicited call from a broker seeking your business.
"Understand that the more time you spend on the phone with a broker, the more likely you are to succumb to his pitch," Lewins said. "This is especially true of the elderly and/or lonely."
Brokers are professional sales representatives who are trained on "how to make you feel comfortable and how to overcome your objections," he said.
"If you do not want to choose your broker via an anonymous voice on the phone, then politely but firmly say, 'No, thank you,' and hang up," Lewins said.
Attending a seminar — More and more brokers are using seminars to find new clients, he said.
"The invitation is almost always couched in terms of giving you information or education. But at the end of the day, the brokers who put on these seminars are there to sell you a product or an investment plan of some sort, something that will generate a commission or fee for them," Lewins said.
Don't select a broker purely on attendance at a seminar.
"As a method of deciding on whom to invest your money with, attending a seminar is only a step, and a small one at that, above responding to a cold call," Lewins said.
Affinity groups — Marketing to affinity groups — people with a shared experience or background, such as members of the same church — is growing in the financial services industry, Lewins said.
"A member of the group uses that common background or experience as a way to market products and/or services to other members of the group," Lewins said.
For example, some spiritual leaders may become brokers to supplement their income, he said.
Be careful in selecting a broker solely on the basis that he or she shares a common background with you.
"Most people, whether consciously or subconsciously, cannot bring themselves to question any advice their priest, minister, rabbi may provide," Lewins said. "This is a potentially perilous situation when that advice is financial in nature."
So how should you choose a broker? "The same way porcupines mate," Lewins says in his book, "very carefully."
Source: McClatchy-Tribune Information Services.