Brokerage Rules

Brokerage Rules: To prevent misconduct, states and the federal government have created laws brokers must follow. Although most brokers and investment professionals are never accused of misconduct, there are a few who do, and the consumers and their financial futures must be protected. The U.S. Securities and Exchange Commission (SEC) was instituted to protect investors. It is also responsible for ensuring the proper operation of the financial markets by enforcing financial market and broker rules.[/box]

Customer’s best interest
Brokers are required to ensure their customer’s financial goals are met or exceeded. In fact, according to the Financial Planning Association, a broker who does not execute trades in his client’s best interest must submit a written explanation of the trade(s) and circumstances. He is not allowed to use his client’s money in investments that do not meet the customer’s desired risks. Brokers must always present the client with truthful statements about her current and prospective investments, their current account and investment status, and all fees that apply to investment trading or management. A broker must be able to place himself in the place of his client, investing in the best interest of his client.[/box]

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Permission and time
The Washington State Department of Financial Institutions states that brokers cannot make any money market trades in a client’s account without prior approval and permission. Some cases exist where a client provides permission for the broker to change her investments at the broker’s discretion; however, this permission can be revoked at any time, according to the Financial Planning Association. Once permission is granted, the broker is required to execute the transaction immediately. Financial Planning Association states that any trade that is not in the client’s best interest must have received prior written approval from the client.[/box]

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Registered brokers are not allowed to commingle any of the broker’s client’s accounts with his own accounts. All funds are to be kept separate. These accounts include securities accounts and cash accounts. Broker’s client’s accounts cannot be held to secure any debt the broker has. Brokers are also not allowed to either borrow or lend any cash or securities to customers.[/box]