Checking a Broker Before Sending Money
Registration, disciplinary history and custody arrangements are all public and take a few minutes to check. Almost every large fraud fails at the first of them.
MadStockAlerts Research · Updated August 29, 2026
What to take away
- Registration status is public and checkable in minutes, for firms and for individuals.
- A disciplinary record is disclosed, including complaints that were settled.
- Who holds the assets is a separate question from who advises on them.
- Fee structures differ in kind, not only in amount.
- An unregistered firm is outside every protection scheme, whatever it claims.
MAD Academy Training Video · 0:46
Ten Minutes Before You Send Money
Registration and disciplinary history are public and free to search, and checking them is the single highest-value ten minutes available.
This lesson is part of a Stock Alerts + Tools plan.
The checks that are public
| Check | What it shows |
|---|---|
| Broker registration | Whether the firm and the individual are registered, and in which states |
| Disciplinary history | Regulatory actions, customer complaints, arbitrations and terminations |
| Investment adviser registration | A separate regime with its own public record and disclosure brochure |
| Membership of the protection scheme | Verifiable directly with the scheme rather than from the firm's own claim |
These records are maintained by regulators and are free. The disciplinary record is the one worth reading rather than glancing at: it includes matters that were settled without any admission, and a pattern across several employers is more informative than any single entry.
Two different regimes
A broker-dealer and an investment adviser are regulated differently, and the difference determines what standard the firm owes you.
| Broker-dealer | Investment adviser | |
|---|---|---|
| Primary activity | Executing transactions | Advising for a fee |
| Standard owed | Regulation Best Interest, for recommendations to retail customers | A fiduciary duty |
| Typical compensation | Commissions, spreads, payment for order flow | A fee on assets or a flat fee |
| Public record | The broker registration system | The adviser registration system and Form ADV |
Many firms are registered in both capacities, and the capacity in which they are acting at a given moment determines the standard. That is a real distinction and a difficult one to observe from outside, which is why the disclosures describing it are worth reading once.
Custody is the question that matters most
Who holds the assets is a separate question from who makes the recommendations, and the separation is the single most effective structural protection against the largest category of investment fraud.
Where a third-party custodian holds the assets, statements come from that custodian and can be checked against anything the adviser says. Where the adviser has custody, the statements and the assets are produced by the same party, and the historical cases of very large frauds share that feature.
A request to send funds to an account in the firm's or an individual's name, rather than to a custodian, is the single most reliable warning sign in this entire subject. There is no ordinary reason for it.
- 1You
- 2The adviser or brokerMakes recommendations, places orders
- 3A separate custodianHolds the assets and issues the statements
- 4Statements you can access directlyThe check that the largest frauds could not have survived
What the fees are actually charged on
- Commission per trade, which has fallen to zero at many firms for US equities and has not for every product.
- The spread and routing economics, which are not itemised anywhere on a statement.
- A percentage of assets, charged whether or not anything is traded.
- Margin interest, on any borrowed balance.
- Fund expense ratios, deducted inside the fund rather than billed.
- Transfer, wire and account closure fees, which appear when leaving.
The second and fifth are the ones that do not appear as charges anywhere. Both are real costs and both are disclosed somewhere other than the statement, which is why a fee comparison based on the statement alone is incomplete.
What to compare beyond the fee
Commission has converged toward zero for US equities at most firms, which means the differences that remain are elsewhere. Several of them are more consequential than the headline number ever was.
| Dimension | Why it matters |
|---|---|
| The rate paid on uninvested cash | Frequently several percentage points below market, on a balance most people forget |
| Margin interest rates | Vary widely, and are charged daily on any borrowed balance |
| Execution quality | Disclosed under Rule 605 and 606, and it varies |
| What can be held | Foreign listings, bonds, options approval levels, fractional shares |
| Fees for leaving | Transfer and closure fees, in the account agreement |
| Access to a person | Which matters exactly once, when something has gone wrong |
The first row is the largest and the least examined. Uninvested cash swept into a low-rate programme rather than into a money market fund can cost more in a year than a decade of the commissions that were removed.