Here are 5 good questions that the Securities and Exchange Commission (SEC) and Washington Department of Financial (DFI) recommends that you ask before you invest.
1) Is the seller licensed?
Investors should always check the background of anyone promoting an investment opportunity.
You can contact DFI to find out if the individual selling the investment is licensed and if there are any complaints against them. Call DFI at 1.877.RING DFI (746-4334).
Researching brokers: Details on a broker’s background and qualifications are available for free on FINRA’s BrokerCheck website.
Researching investment advisers: The Investment Adviser Public Disclosure website provides information about investment adviser firms registered with the SEC and most state-registered investment adviser firms.
2) Is the investment registered?
Any offer or sale of securities must be registered with the SEC or DFI. Some securities are exempt from registration.
Checking the registration is important because it provides investors with access to key information about the company's management, products, services, and finances.
Check whether an investment is registered with the SEC by using the SEC’s EDGAR database or contacting DFI at 1.877.RING DFI (746-4334).
3) How do the risks compare with the potential rewards?
The potential for greater returns always comes with greater risk.
Investments with high risk may expose you to greater investment losses. Keep in mind every investment carries some degree of risk and no legitimate investment offers the best of both worlds.
Many investment frauds are pitched as high return opportunities with little or no risk. Ignore these so-called opportunities or, better yet, report them to the SEC or DFI.
4) Do you understand the investment?
Never invest in something you don’t understand. Be sure to always read an investment’s prospectus and disclosure documents carefully. Ask questions about the investment. Interview other people who have invested in the product or opportunity.
If you can’t fully understand the investment and how it will help you make money, ask a licensed financial professional for help. If you are still confused, you should think twice about investing in the product.
5) Where can you turn for help?
When learning about new investments, unbiased information can be a great advantage.
Make a habit of using the information and tools on the SEC website www.investor.gov and DFI’s website www.dfi.wa.gov .