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When you apply for a new account at any brokerage firm, you are generally required to sign an agreement. However, please take note that like any other form of agreements you should take care by reading the information contained in the document thoroughly before you sign anything or you may have signed away some of your rights and even going to the courts will be of no use. 

Make sure that you look through any form of documentation that the sales representative has prepared on your behalf. Again remember to not sign off any documents without you reviewing the papers carefully and meticulously. Verbal agreements in these cases cannot be relied upon as they do not stand up in court if anything were to happen to go wrong. Make sure to also check the terms and conditions and see if you agree with them.

Another thing is that you have to be able to trust the sales representative as they will ask you questions regarding about your financial health such as your salary, personal financial situation, investment experience, net worth and your investment objectives. So you have to be honest and have the willingness to trust them with this information because only from this can the sales representative get an accurate assessment as well as provide you with the best investment recommendations according to your needs.

Critical decision that needs to be made includes:

Who controls the decision making in your account?

Generally you are the one in control over your investment decisions made in your account, however if you want to you can give discretionary authority to the sales representative to make the investment decisions on your behalf. If you think that this form of arrangement will benefit you then you can proceed with it, but you should seriously consider it first before giving discretionary authority to the sales representative. A discretionary authority is what allows the sales representative to make all the necessary arrangements that they believe is in your best of interest. They will do all this without consulting you at all and this will include the type of security, about the price, the amount and when to buy or sell.

How much risk are you willing to take?

As an investor you should know the risks that you are going to take and how far are you going to take them. So when you apply for a new account, you have to state clearly your overall investment objectives in terms of the risks. There are different type of risks that are separated in specific categories which may use labels such as aggressive growth, growth and income. So it is vital that you understand the differences between the terms so that risks you have chosen can maximize your investment in terms of profits.

How to pay for your investments?

After you have signed up for an account you need to decide on how you should pay your sales representative. Usually for most investors they have a cash account that requires full payment for each time there is a security purchase. However, if you decide to not choose this option there is an alternative which is the margin account. When you purchase securities using the margin account you are able to borrow money from the brokerage firm to purchase the securities, however you should take note that like all loans there are interests that you need to pay back. When you apply for this type of account you will be required to sign a margin agreement disclosing interest terms. And another thing that you need to consider with the margin account is that the firm has the legal right to instantly sell of any security in your account without prior notice so that they can cover any shortfall because of the decline in the values of your securities. Even after the securities are sold there may still be a substantial amount of money. Which means that in the margin account agreement your securities may be lent out to the brokerage firm without informing you or reimburse you in any way. So you should seriously consider this form of account on whether this is what you really need to make your money grow.

Also when you open a new account at a stock brokerage firm, they may ask you to sign a legally binding contract that will arbitrate any disputes that may arise between you and your sales representative or between you and the firm in the future. Such as the margin account document, this may be part of another document. You should also take note that you are not required to sign such a document as you may choose later to arbitrate a dispute between you and either the firm or sales representative, even if you do not sign the agreement. However, if you do sign such an agreement it will mean that you are giving up your rights away to sue the firm or sales representative if a dispute ever does arises.

And finally you should consider whether to have your securities registered in the name of your brokerage firm or in your own name. There are advantages and disadvantages for each of the arrangements, so make sure to ask your sales representative about them before choosing one. However, a general rule of thumb is that if you plan to regularly trade securities, then it may be in the best interest to have your securities registered in your brokerage firm’s name as this will facilitate settlement, dividend payment and clearance.