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You may have lost money in your investment portfolio,
due to mismanagement and not even know it.

Stock broker fraud: how do you know?

The ability to manage your money efficiently and effectively is a great skill to have, and can lead to your being more comfortable financially in your future. While having the ability to stick to a budget is a good start, the way to make your money work for you is to make the right investments.

Of course, not everyone has the knack for picking the right stocks all the time. Some do not have time to manage and carefully watch their money or wait to see when the best time is to buy or sell stocks and other securities. Others do not have the training to understand what kinds of risks are appropriate for their investment goals.

If you fit into any of these categories, you may have thought about or already enlisted the services of a stock broker or other financial adviser in order to give you an edge when it comes to the market. It is a great responsibility, but how do you know that they are doing their job?

Take a look at the answers to these three questions:

Question 1: Can you trust your broker?

There are a lot of stock brokers that get to know their client's financial considerations and goals and do a good job in helping them make the right investment decisions that will serve them in the long term. Investments made with the goal of paying out long term, over several years or more, don't always look especially exciting from day to day, but in many cases they are the types of investments you can count on.

Your broker may pick many stocks like these for your portfolio, and he or she may take some calculated risks based on general market knowledge in hopes of making money a bit faster. It is important to remember that, although your broker has training to understand the nuances of the market, it is ultimately you who are in charge of your portfolio.

This means your broker must have written permission before buying or selling stocks or mutual funds. If they believe that you should make a trade they should be able to explain why they are recommending that you acquire or sell of certain securities and respect your wishes as they act on your behalf.

A broker who can do this leans further toward a determination of trustworthy, but it doesn't mean you shouldn't keep an eye on the situation, just in case. Ask questions and make them explain their decisions.

Question 2: What is investment fraud?

A big part of a broker's paycheck comes from commissions, so if a financial adviser makes a transaction, they make money -- even if the stock's profitability takes an immediate nosedive.

Fraud occurs when a broker misleads or lies to a client about the potential performance of a security without properly taking into consideration their client's financial limits, investment goals, or general financial best interest. It also occurs when they abuse authority they have been given, or act without authority to transact on their client's brokerage account.

Fraud can also occur when a broker neglects to follow instructions their client has made for buying or selling securities. Unauthorized or excessive trading are other ways that a broker may try to increase his own commission income while providing little or no long-term benefit for the client.

It is also considered fraud if a broker or advisor misrepresents themselves or their credentials, such as claiming to hold a license he or she has not earned. Lastly, recommending illegal acts, such as holding accounts under other names, can also constitute fraud and can leave the broker and the client in trouble financially or otherwise.

Question 3: Was it an honest mistake?

There are financial advisers and brokers who simply are not good at their job, the stock market can shift at any moment and hindsight is one thing you can't have when dealing with finances. Brokers might give bad advice based on the fact that they have misjudged the potential of a security, and this sort of thing can happen to a broker at any skill level.

This is one reason why diversifying a portfolio is important, the occasional bad choice gets balanced by the better ones. If the same mistakes are made frequently, and the adviser is benefiting from them financially, there is a higher chance that the error could be constituted as fraud.

Investor fraud is something that happens to people in all types of circumstances, from the executive that has more money to burn than the average hourly worker to the senior citizen trying to retire after a long career, to the doctor or busy professional that does not have the time.

The Law Offices of Marc I. Zussman in Los Angeles, California is experienced in investigating various scenarios where investor fraud may be lurking. We investigate what should have happened with the handling of securities, and compare it with what actually did happen. Through our diligence and dedication we have been able to help a number of clients get back money they never should have lost.

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