09/10/2013 07:28 pm ET Updated Nov 10, 2013

Dealing With Cold Calls From Brokers

I wish I could tell you I feel sorry for Junmo Hong, a former broker employed by John Thomas Financial, but I don't. The hapless Mr. Hong recently consented to an order revoking his license as a broker-dealer agent for a variety of offenses, not the least of which was unwittingly cold-calling a senior securities examiner with the Arkansas Securities Department. During the call, Mr. Hong touted the prospects of a specific stock. He indicated that the stock was about to "soar" because of important new contracts allegedly in the works. Hong also suggested to the examiner that he falsely declare himself to be an accredited investor, although he did not qualify to do so.

While a senior securities examiner is well equipped to deal with cold calls from brokers, you may not be so fortunate. The Securities and Exchange Commission has published a helpful guide that sets forth your rights when you receive a cold call from a broker. Here are the highlights:

Avoid All Cold Calls

By registering with the National Do Not Call Registry, you can avoid most cold calls altogether. You can register online at or by calling 888-382-1222. Be sure to call from the telephone you wish to enter.

Beware of High-Pressure Sales Tactics

Some cold callers read from scripts and have glib answers to all questions. The SEC considers this a red flag.

Beware of Once-in-a-Lifetime Opportunities

Cold callers often tout breakthrough technologies or other unusual opportunities to make a quick buck. Typically, the "quick buck" is made by the brokers, from those who fall for their pitch.

Ask for Representations in Writing

Cold callers often make all kinds of irresponsible claims orally, but they will rarely put them in writing. Ask for written confirmation. If the caller refuses to provide it, you can assume the information is unreliable.

Check Out the Broker and the Brokerage Firm

Do your due diligence. You can check out the broker and the brokerage firm here. You should also contact your state securities regulator. You can find more information here.

Get a Second Opinion

Even if everything checks out, get a second opinion from a trusted investment professional.

While cold calling by brokers is legal if it's in compliance with applicable statutes and regulations, it's a practice that readily lends itself to abuse. You can easily avoid becoming a victim of cold-calling brokers by following this simple rule:

Hang up.

Dan Solin is the director of investor advocacy for the BAM ALLIANCE and a wealth adviser with Buckingham Asset Management. He is a New York Times best-selling author of the Smartest series of books. His next book, The Smartest Sales Book You'll Ever Read, will be published March 3, 2014.

The views of the author are his alone and may not represent the views of his affiliated firms. Any data, information and content on this blog is for information purposes only and should not be construed as an offer of advisory services.