🎯 In 30 seconds: Before you hand money to a brokerage or a financial professional, spend ten minutes checking them on free government tools. Know what protects your account if the firm fails (SIPC), and what does not (market losses). Know whether the person you talk to is a broker, an investment adviser, or both, because the rules they follow differ.
SIPC is not FDIC
| FDIC (banks) | SIPC (brokerages) | |
|---|---|---|
| Covers | Deposits | Missing cash and securities if a member brokerage fails |
| Limit | $250,000 per depositor, per bank, per ownership category | $500,000 per customer, including up to $250,000 in cash |
| Protects against market losses? | Deposits don’t have market losses | No. If your stocks fall, SIPC does not cover it |
| Does not cover | Stocks, bonds, mutual funds, crypto, annuities | Bad advice, worthless securities you were sold, commodity futures, unregistered crypto |
SIPC restores the custody function: if the firm goes under and assets are missing, it works to put your securities and cash back. Money market funds are protected as securities, not as cash.
Look them up: three free tools
- FINRA BrokerCheck (brokercheck.finra.org): registration, employment history, licenses, customer complaints, and disciplinary actions for brokers and firms.
- SEC IAPD (adviserinfo.sec.gov): investment advisers and their Form ADV, which describes services, fees, conflicts and disciplinary history.
- Investor.gov “Check Out Your Investment Professional”: searches both, and shows a firm’s Form CRS.
Also check your state securities regulator, which registers smaller advisers.
Broker vs adviser: the standard they follow
Investment advisers owe you a fiduciary duty under the Investment Advisers Act: a duty of care and a duty of loyalty that applies to the whole relationship. That includes advice suited to your goals and monitoring over the relationship.
Brokers follow Regulation Best Interest (Reg BI), with compliance required since June 30, 2020. When a broker makes a recommendation, it must be in your best interest at that moment and the broker cannot put its own interest ahead of yours. The SEC’s guide is explicit that Reg BI does not impose a duty to monitor your account, unless the broker agrees to.
Many professionals are dual-registered. Ask which hat they are wearing for each recommendation.
Form CRS: the two-page summary
Brokers and advisers must give retail investors a relationship summary called Form CRS. Every one uses the same headings in the same order, so you can compare firms side by side. It covers services, fees and costs, conflicts of interest, disciplinary history, and questions to ask.
Worked example: a ten-minute check
| Minute 1–3 | Search the person on BrokerCheck: registered? any disclosures? |
| Minute 4–5 | Search the firm: SIPC member? (sipc.org list) |
| Minute 6–8 | Read the firm’s Form CRS fees section |
| Minute 9–10 | Write down: “How will you be paid on this recommendation?” and ask it |
For scams beyond investing, see the security center.