How To Be The Perfect Copycat Investor

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If you're reading this, you may be planning to open a brokerage account. You may wish to invest for your retirement or a child's education, or simply to try to grow some cash you have set aside. This publication explains what to expect if you do decide to open a brokerage account, including what information you will be asked to provide, what decisions you will be asked to make, what questions you should ask your broker and what your rights are as a customer of a brokerage firm.

When you decide to open an account, there will be paperwork to complete. This trading someone elses brokerage account include a new account applicationwhich brokerage firms may also call a new account form, account opening form or something similar. This application form will require you to provide some information about yourself, as well as ask you to make certain decisions about your account. As explained in more detail below, brokers use this information for several purposes, including learning about you and your financial needs and meeting certain regulatory obligations.

While it may take a little time to fill out the application, it is important to answer the questions on the application accurately.

So, be sure to read the application and the accompanying agreements and other documents the brokerage firm gives you carefully—and ask questions about anything you don't understand. In a new account application, along with other information, you'll likely be asked to provide your:. Be accurate when you are providing the information requested on these forms.

Your broker will use the information to understand your financial needs and to meet certain regulatory obligations. In addition, you are certifying that the information you've provided is accurate when you sign the new account application.

The new account form will also ask you to make some important decisions about your account, including how you will pay for your transactions, how any uninvested cash will be managed and who will have control over and access to your account.

While margin loan agreements are typically used to allow investors to buy securities on margin, some firms allow their trading someone elses brokerage account to take out loans for other purposes. In connection with these loans, a firm might ask the customer to sign a margin agreement.

Before you borrow money from your brokerage firm-for any reason-be sure you fully understand the terms, costs and consequences. The new account application may come with other documents-such as a "Customer Agreement," "Terms and Trading someone elses brokerage account or the like. Make sure to ask for copies if you do not receive them and download or print out copies of these for your records if you conduct business with your brokerage firm online.

Be sure to take time to review carefully all the information in these documents, whether you are opening your account in person at your broker's office or filling out your forms at home or online. And do not sign them unless you thoroughly understand and agree with the terms and conditions they impose on you. If you haven't already done so, make sure you check out the background of your broker and brokerage firm before you open an account with them.

Although a history free from registration or licensing problems, disciplinary actions or bankruptcies is no guarantee of the same in the future, checking out your broker and firm in advance can help you avoid problems.

Also make sure that the phone numbers and addresses that your broker and brokerage firm give you as their contact information are consistent trading someone elses brokerage account those listed in Brokercheck. Fraudulent entities and individuals have been known to steal the identities of legitimate brokers and brokerage firms trading someone elses brokerage account that they can get at your personal information!

Asking questions will help you to invest wisely and avoid problems. No matter what your level of investing experience, don't be shy or intimidated—it's your money.

Here's a list to get you started. The brokerage firm that you open an account trading someone elses brokerage account may not be the one that sends your account statements. You may open an account with an introducing firmwhich trading someone elses brokerage account recommendations, takes and executes your orders and has an arrangement with a clearing and carrying firmwhich is the one to finalize "settle" or "clear" your trades and hold your funds or securities.

There are also firms that take and execute orders and settle trades. If you work with an introducing firm, you may receive statements from the clearing firm. Find out what type of firm you open an account with and who will send you the account statements. You will receive an account statement at least once every calendar quarter. Whether the securities are registered in your name or in the name of the brokerage firm can affect how soon you receive your dividends and interest, trading someone elses brokerage account ease with which you can sell your securities and trading someone elses brokerage account types of communications you receive directly from the issuer of the securities, among other things.

After you open your account, you should monitor its activity regularly. Make sure that you review all of trading someone elses brokerage account account statements and trade confirmations for any errors or any transactions that you did not authorize. If you see any evidence of unauthorized trading or errors, notify your broker, broker's supervisor or brokerage firm's compliance department immediately to further protect your rights.

Make sure to take notes of any conversations you have with your firm concerning such disputes, to send in your complaints in writing as well and to keep copies of these notes and all communications related to such disputes for your records.

Ask yourself whether your investments are meeting your expectations and goals and whether your goals have changed. Do your investments still appear to be right for you, and what criteria will you use to decide when to sell? Information You'll Be Asked to Provide When you decide to open an account, there will be paperwork to complete. In a new account application, along with other information, you'll likely be asked to provide your: Social Security or other tax identification number: Like banks, credit unions and other financial institutions, brokerage firms must report to the Internal Revenue Service the income you earn on your investments.

Driver's license trading someone elses brokerage account passport information, or information from other government-issued identification: Employment status, financial information—such as your annual income and net worth—and investment objectives: Collecting this information helps your broker to fulfill regulatory obligations. In addition, the information can help your broker determine suitable investment recommendations for you.

Note that the terms used to describe investment objectives often vary across brokerage firms and new account applications. Trading someone elses brokerage account might hear terms such as "income," "growth," "conservative," "moderate," "aggressive" and "speculative. Make sure that you describe your financial goals, how much risk you are willing to take with your investments and when you expect to need access to the funds in your account as comprehensively as possible.

Effective February 5,new account forms may include a section asking you to provide information for a trusted contact person. Your broker might ask for this information in a conversation or via email as well. Trading someone elses brokerage account should expect to be asked to provide the name, address and telephone number s for a trusted contact person that your brokerage firm may contact about your account. While you are not required to provide this information to open an account, it may be a good idea to do so.

By choosing to provide this information, you are authorizing the firm to contact such person and disclose information about your account in certain trading someone elses brokerage account, including to address possible financial exploitation, and to confirm the specifics of your current contact information, health status, or the identity of any legal guardian, executor, trustee or holder of a power of attorney. You also will receive a written disclosure from the firm that lays out these details.

Decisions You'll Be Asked to Make The new account form will also ask you to make some important decisions about your account, including how you will pay for your transactions, how any uninvested cash will be managed and who will have control over and access to your account.

Do you want a cash account or margin loan account? Most brokerage firms offer at least two types of accounts—a cash account and a margin loan account customarily known as a "margin account".

In a cash account, you must pay for your securities in full at the time of purchase. In a margin loan account, although you must eventually pay for your securities in full, your broker can lend you funds at the time of purchase, with the securities in your portfolio serving as collateral for the loan. This is called buying securities "on margin. There are risks that arise from purchasing securities on margin that do not come with most other types of trading someone elses brokerage account.

For example if the value of your securities declines significantly, you may be subject to a "margin call. The brokerage firm decides which of your securities to sell. Even if the firm gives you notice that you have a certain number of days to cover the shortfall, the firm still may sell your securities before that timeframe expires. Also, the firm may change, at any time, the threshold at which customers can be subject to a margin call. Be sure to read carefully your new account application and any other documents that your broker gives you about margin loan accounts.

Be sure that you understand how these accounts work before you sign up for one. With some firms, you sign up for a margin loan account by default unless you indicate otherwise on the application. If you have opened a margin account, but trading someone elses brokerage account pay for your securities in full at the time of purchase, you incur no more risks trading someone elses brokerage account you would in a cash account.

No "Margin" for Error. How do you want to manage your uninvested cash? Sometimes there is cash in your account that hasn't been invested. For example, you may have trading someone elses brokerage account deposited money into your account without giving instructions on how to invest it, or you may have received cash dividends or interest.

Your brokerage firm typically will automatically place—or "sweep"—that cash into a cash management program customarily known as a "cash sweep" program. On your new account application, your brokerage firm may ask you to select a cash management program.

Cash management programs offer different benefits and risks, including different interest rates and insurance coverage. Be sure you understand the different features of the cash management programs that your firm offers so that you trading someone elses brokerage account make an informed decision if you are asked to choose one. Who will make the final decisions for your trading someone elses brokerage account You will have final say on investment decisions in your account unless you give "discretionary authority" in writing to another person, such as your financial professional.

With discretionary authority, this person may invest your money without consulting you about the price, amount or type of security or the timing of the trades that are placed for your account.

Some firms trading someone elses brokerage account you to indicate who has discretionary authority over the account directly on the new account application, while others require separate documentation. There may be other types of authority that you may provide over your account, including a power of attorney and authorized trading privileges. Make sure you think through the risks involved in allowing someone else to make decisions about your money.

Other Account Opening Documents The new account application may come with other documents-such as a "Customer Agreement," "Terms and Conditions" or the like. Check Out Your Broker If you haven't already done so, make sure you check out the background of your broker and brokerage firm before you open an account with them.

Questions to Ask Asking questions will help you to invest wisely and avoid problems. Is this trading someone elses brokerage account margin account or a cash account?

Can you explain the differences between the two? What choices do I have regarding cash sweep programs? What are the different features, trading someone elses brokerage account interest rates and federal insurance coverage?

If the firm offers both bank deposits and money market funds, what are the advantages and disadvantages of selecting one over the other? Who will control decision-making in my account? How often will I get account statements? Who will provide the statements and will they be online or in paper? Will my securities be registered in my name, or in the name of the firm?

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Company Filings More Search Options. The Securities and Exchange Commission's SEC Office of Investor Education and Advocacy is issuing this Investor Bulletin to help you understand what to expect when opening a brokerage account, including what information you will need to provide, what decisions you will be asked to make, and what questions you should ask your broker. Brokerage accounts differ from investment advisory accounts, which generally are governed by different rules and regulations.

For additional information on working with broker-dealers and investment advisers, please see Investor. Before opening an account with any broker, you should always remember to check the broker's background and disciplinary history. For guidance in finding a broker's background or disciplinary history, as well as other tips to consider when selecting a broker, please read the SEC's bulletin " Top Tips for Selecting a Financial Professional. Brokers generally request personal information from their customers, including financial and tax identification information.

Brokers need this information to comply with laws and other regulations. Some of the information a broker will likely ask you to provide includes:.

For additional information on why brokers require this personal information, please see "Broker-Dealers: Brokerage firms generally offer at least two types of brokerage accounts - a cash account and a margin account:. You will make your own investment decisions for your account, unless you grant "discretionary authority" to someone else to make decisions for you on your account. If you want someone else to have discretionary trading authority on your account, you will need to provide him or her with written legal authorization.

Ask your broker for the correct form to fill out. Before granting anyone discretionary authority over any brokerage account, you should seriously consider the risks involved in allowing someone else to make decisions about your money. When you open a new brokerage account, you may be asked to specify your overall investment goals or "objectives" and how much risk you are willing to tolerate. Different firms use different terms to describe investment objectives or risk tolerance levels.

Some common terms are: If you have questions, ask your broker. Sometimes you may have cash in your brokerage account that has not been invested. When you open a brokerage account, your broker may ask you to choose a cash management program for this uninvested cash. Brokerage firms may offer several cash management programs to their customers:. Your brokerage firm may not offer all of these options for your uninvested cash. For example, some brokerage firms require a bank sweep program for uninvested cash.

Each of these cash management programs offer different benefits and risks, including different interest rates and insurance coverage. The terms and conditions of these cash management programs vary between brokerage firms. Make sure you understand and carefully consider the available options, benefits and risks associated with each cash management program before selecting one for your uninvested cash. Brokers generally are required to provide you with account statements and confirmations.

Your broker may give you the choice of whether to receive account statements and transaction confirmations on paper or electronically. Others may not offer a choice. For example, some online-only firms may limit their customer communications to online or electronic means, and charge customers a fee to receive account statements and confirmations on paper. Account statements and confirmations help to protect you. You may also want to consider whether you want a person whom you trust to receive duplicate account statements and transaction confirmations.

You will pay a variety of fees in connection with your brokerage account. These fees and their amounts will vary among broker-dealers. Before opening your brokerage account, make sure you understand what fees will apply to your account. Some examples of common fees include:. In addition to fees associated with your account, you will likely have additional fees in connection with certain investments, such as mutual funds, ETFs and variable annuities.

When you move an existing account, in addition to paying fees, you may also find that you cannot transfer certain securities. For example, your new broker-dealer may not accept all of the securities in your old brokerage account.

In these circumstances, you may consider leaving these securities with the broker-dealer or selling these securities and transferring cash to your new broker-dealer. You probably will pay a commission or other fees in connection with any securities you sell.

Depending on the type of account you held with your former broker-dealer, you may find that there are taxes, penalties or restrictions for selling or moving your securities. SIPC protection applies to most types of securities, such as stocks, bonds, and mutual funds. For additional investor education information, see the SEC's website for individual investors, www.

I am moving my account from another broker-dealer. Will all my securities transfer from my old broker-dealer? If not, which securities will not transfer? Do you charge a fee for moving the securities from my old account into my new account? What choices do I have regarding investments? What choices do I have regarding cash sweep programs? Can you explain the benefits and risks of these programs, including any insurance protection, interest rates and costs I will incur?

Securities and Exchange Commission. Investor Alerts and Bulletins. How to Open a Brokerage Account March 11, The Securities and Exchange Commission's SEC Office of Investor Education and Advocacy is issuing this Investor Bulletin to help you understand what to expect when opening a brokerage account, including what information you will need to provide, what decisions you will be asked to make, and what questions you should ask your broker.

Some of the information a broker will likely ask you to provide includes: Your name Social security number or taxpayer identification number Address Telephone number E-Mail address Date of birth Driver's license, passport information, or information from other government-issued identification Employment status and occupation Whether you are employed by a brokerage firm Annual income Net Worth Investment objectives and risk tolerance For additional information on why brokers require this personal information, please see "Broker-Dealers: Brokerage firms generally offer at least two types of brokerage accounts - a cash account and a margin account: In a cash account , you must pay the full amount for securities purchased.

You may not borrow funds from your brokerage firm in order to pay for transactions in the account. In a margin account , you can borrow funds from your brokerage firm to purchase securities this is called buying securities "on margin".

The brokerage firm uses the securities in your margin account as collateral for the money it lends to you to purchase these securities and you pay interest on the money you borrow. Margin accounts can offer you greater purchasing power, but also expose you to the potential for larger losses. Are you comfortable giving discretionary authority to another person?

What are your investment goals and how much risk are you comfortable taking? How do you want to manage cash in the account? Brokerage firms may offer several cash management programs to their customers: A "bank sweep program" involves the automatic transfer of any uninvested cash in the brokerage account into a deposit account at a bank or banks that may or may not be affiliated with the broker-dealer; Some programs allow you to "sweep" funds to one or more money market mutual funds ; or You may simply leave uninvested funds in the brokerage account.

How do you want to receive your account statements and confirmations? Understand Your Fees You will pay a variety of fees in connection with your brokerage account. Some examples of common fees include: Transaction Costs - These are the costs you will pay when buying or selling securities. Some examples of transaction costs include: Commissions - a fee you pay to the broker-dealer for executing a trade often based on the number of shares traded or the dollar amount of the trade.

When buying or selling from its own inventory, the broker-dealer generally will be compensated by selling the security to you at a price that is higher than the market price the difference is called a markup , or by buying the security from you at a price that is lower than the market price the difference is called a markdown. Loads - a sales charge you pay when buying or redeeming shares in a mutual fund or variable annuity. Account Maintenance Fees - a monthly, quarterly, or annual fee that a broker-dealer may charge you for certain brokerage accounts below a certain dollar threshold to keep these accounts open at the brokerage.

Account maintenance fees vary among broker-dealers and they do not necessarily apply to all brokerage accounts at a broker-dealer. Inactivity Fees - a fee that a broker-dealer may assess on your brokerage account if you have made few or no transactions for a period of time.

Account Closing Fee - a fee that a broker-dealer may charge you when you close your account. Margin Interest - the interest that a broker-dealer may charge you for loans from your margin account. Wire or Transfer Fees - fees a broker-dealer may charge you to wire money from your brokerage account or to transfer assets or cash to another broker-dealer. A Note About Transferring Securities to a New Account When you move an existing account, in addition to paying fees, you may also find that you cannot transfer certain securities.

Additional Information For additional investor education information, see the SEC's website for individual investors, www. Is there a complete schedule or list of fees?

Can you explain the differences between the two? Will they be online or in paper? What are the fees associated with this account? Who will make investment decisions for my account if this is a discretionary account? Is this a margin or cash account? How can I access funds in my account and how much time does that take? How will I receive my account statements? Who do I contact if I have a question or concern regarding my account?