A good stock broker can help you manage your investments if you don’t want to do it yourself. However, good brokers have always been hard to find. And, as any good stock broker or experienced investor can tell you, bad brokers are all too common.

By “bad brokers,” we mean those who put their own interests above their clients’. Keep in mind, however, that a bad stock broker can do this in a perfectly legal fashion by catering to their clients’ whims and weaknesses.

Here are 3 ways to tell if brokers are putting their interests ahead of yours:

1. Read between the lines of stock broker advice. Brokers often use “hold” or “reduce” or “source of cash for new buying” as a euphemism for “sell.” That’s because they don’t want to offend potential underwriting or corporate-finance clients, who generate far more profit than individual investors.
   
   By the way, that’s not a problem for us because we stay out of the underwriting and corporate-finance businesses. Further, if we think a stock’s prospects make it a sell, we say so in our newsletters and our Inner Circle service. We’ll say a stock is a “hold” when we feel there are better choices for new buying, but we still like its longer-term prospects. After all, every sale involves some costs. So, as a general rule, we advise against treating our “hold” recommendations as sells.
2. Keep brokers’ price targets in perspective. Targets tend to push up your trading activity and commission expense because they give you a rationale for selling whenever a stock you own hits its target. This helps explain the popularity of targets in stock broker research.
   
   We don’t publish targets for several reasons. One is that they draw too much attention to predictions, which are the least reliable part of the investment decision-making process. They also spur investors to sell their best picks way too early. After all, your best picks are those that did way better than you ever expected. However, if we do feel a stock is a sell, we’ll immediately let you know in our newsletters, or in our Inner Circle service.

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3. Frequent trading will eventually cost you money. Some trading suggestions will inevitably make money. But as a rule, active trading generates high commissions for the stock broker, and weak profits, or even losses, for the client.
   
   Bad brokers exploit this situation by churning their clients’ accounts — carrying out short-term trades, sometimes without the client’s express consent. This generates big commissions for the broker, and can temporarily pay off for the client when the market is soaring. But it eventually backfires, and the client loses money.

If you’re looking for authoritative advice on investment issues, or fundamental analysis of investments you’re considering buying, you should join Pat McKeough’s Inner Circle. It’s Canada’s most exclusive investment group.

Inner Circle members always get clear, concise investment advice that’s 100% independent, and untainted by commissions or other undisclosed influences. We guarantee it. Click here to learn more.