10 Questions to Ask Your Broker

Editor's note: This is a special excerpt from TheStreet.com Ratings' Ultimate Guided Tour of Stock Investing. Other Beginner's Guides cover stock basics, market indices, diversification, financial goals, risk tolerance and growth and income stocks .

Although your broker is supposed to be working on your behalf, there is an inherent flaw in the brokerage system: The bulk of a broker's compensation comes from the commissions he generates. So the more he gets you to buy, the more money he makes. While most brokers simply try to make a decent, honest living, the system inevitably rewards those who are aggressively looking out for the interests of the firm while penalizing those who prioritize the interests of the customer.

Your best defense is to arm yourself with as much information as you can when choosing and dealing with a broker. To that end, here are 10 questions you should ask. Keep in mind though, that unless you ask these questions specifically, your broker will probably never tell you.

Question #1: What investment training have you had?

You're likely to hear your broker hem and haw over this answer. The answer you want to hear is that your broker has formal training, such as a degree in finance or accounting, or at the minimum a comprehensive training program at his firm. Most brokers are primarily salespeople, and many have not had any financial training aside from how to sell the firm's products.

The Great Debate: Brokers vs. Advisors

The brokerage firms do make an effort to weed out truly inept individuals. But again, the system works against them. They need bodies to generate commissions, and after investing time and money to train salespeople, they're likely to err on the side of keeping as many as possible, including the borderline and marginal.

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