How to Avoid Unreliable Brokers

According to Timur Turlov, CEO of Freedom Holding Corp.

Trust is crucial for the smooth and steady development of the financial market. Brokerage firms must do everything needed to make potential investors and clients trust them and the tools they offer. In an interview with the Russian Association for Financial Literacy Improvement, Timur Turlov from Freedom Holding Corp. shared his thoughts on how to distinguish the professional stock market participants from unfair ones and how to avoid cyber fraudsters.  

If a company has a good team of qualified and experienced managers, complies with all the reporting rules, possesses a license, is a participant of a stock exchange or other professional organization, and has some rates from international rating agencies this company is highly likely a reliable business.

«If there are no aforementioned signs, it doesn’t mean this company is a fraudster. It is just a red flag that means you have to look at this company carefully. For example, you can call your national association or regulator to clarify some points,» said Turlov.

However, if such a company promises its clients incredible wealth and guaranteed returns to persuade them to invest immediately, this might be a sign of fraud. Of course, a good offer isn’t a sign of unfair business but if a brokerage firm says you’ll get profit with no risk it just can’t be true.

«There are loads of investments that generate high profit on a regular basis. For instance, so-called blue chips from the U.S. such as Apple, Amazon, Google, Netflix, and many companies that were going through IPO have provided investors with huge gains of tens or even hundreds of percentage points in interest per annum,» he noted.

At the same time, any investor should be aware of the risks he takes while putting his money onto the stock market. In this case, the risk is much bigger than using banking deposits, says CEO of Freedom Holding Corp.

«There is no guarantee that this year an investor gets profit similar to the profit he gained last year. He can lose his money as well. That is what people faced during the pandemic when the stock market dropped 40% in just two weeks. I mean big gain is always accompanied by big loss; this is the other side of the coin,» Turlov said. 

Another important topic is cyber fraudsters who want to take your money away from you.

«There are many cyber security tools available for businesses and individuals, go ahead and use one. Install reliable antivirus software for your computer or smartphone to protect you. Also, you can buy professional solutions for a high level of security if this is needed. Just pay your attention to this,» he added.

To be aware of possible fraud, investors may want to see a checklist with red flags prepared by the U.S. Securities and Exchanges Commission (SEC). 

To avoid traps cast out by fraudsters SEC advises following some basic rules. First, ask questions and check out the answers. Second, research before you invest. Third, check the websites of regulators for some historical data concerning any investment company.

You may also want to see if a broker has a license; check the official status and number of a document on the regulator’s website. Find and read carefully a broker’s financial reports. Requirements for such reports might differ from country to country but you can always find them at the official websites of regulators. Overturn, revenue and other criteria must reflect the scale of a company’s business. Anyway, if there is a report on the official website it means that it has already been checked by a regulator. 

If a broker is a foreign company, find out what stock exchanges it registered at; who is behind that broker and how often it has broken the rules in the past.

Read also