10 Questions to Ask Your Broker

Question #5: Do you have a quota to meet for selling the stock in the companies that your firm underwrites?

Brokerage firms typically assist their underwriting clients with "dog and pony shows." This is where the investment bankers -- and often the research analysts as well -- hold special meetings for the firm's brokers or visit the branch offices of the brokerage firm to hawk the new stock. There is tremendous pressure on the brokers to sell these stocks to their clients. Many are even required to sell a certain quota of shares. Ask your broker about this. You won't get an honest answer every time, but it can't hurt to try.

Question #6: Does your firm have its own trading account?

Most firms trade stocks for themselves as well as for their clients. You can tell if a brokerage firm has a trading account by looking at its income statement , so don't be bashful about asking for a copy of the statement. You won't be able to tell which stocks are in the firm's trading account, though, which leads to the next question.

Question #7: Do you currently hold this stock in your firm's principal trading account?

If your broker is honest, he'll tell you the truth. And if you find out the firm does hold the stock in its trading account, you should probably decline the broker's advice, or at a minimum, get a second opinion from another source. Chances are the firm is just trying to clean out its own portfolio of stocks that haven't done well for them.

Question #8: Are you selling this stock on behalf of one of your major clients? If so, why is he selling and how many shares is he selling?

Sometimes, a major customer of a brokerage firm wants to unload a sizable holding of a losing stock. And because he is a very good customer of the firm -- generating a lot of commissions -- the firm is going to try to accommodate him. But they have to find buyers for that stock, so they try to push it on their smaller customers who may not know that the stock is a loser. It helps to know how much of this stock is on the block, who is selling it, and why.