Do Stock Brokers Still Cold Call?


Cold calling, or soliciting business from a potential customer with whom you’ve had no previous contact, is a technique that many companies use to build their client base. The idea is that some people might be interested in the product or service, but they haven’t gotten a chance to look into it themselves. However, while cold calling can be a legitimate sales strategy, there are times when you should be wary of a random caller trying to sell you on a deal.

Stock brokers still cold call, but you should exercise caution when receiving an unsolicited phone call telling you to buy securities. Regulatory authorities, like the US Securities and Exchange Commission, warn investors against investing with cold-calling financial advisors.

Read on to learn more about stockbroker cold calling scams, how to identify them, and what to do if you encounter one.

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What Do Cold Calling Stockbrokers Want?

If you’re dealing with a scammy stockbroker, they want to close a deal with you as fast as possible, as they are set up in what’s called a boiler room or an office packed shoulder-to-shoulder with high-pressure sales people making phone calls all day. Often, these employees won’t be able to go home until they’ve reached a certain number of cold calls. The more sales, the better.

A dishonest stockbroker wants to sell you their assets at all costs. Those assets might be really risky, but the broker will lie and tell you that they’re projected to do very well, but they may not even exist in the first place. Once you give them the money, the broker will completely disappear.

Another ulterior motive that a broker could have when persuading you to buy an asset is to artificially raise the price of the stock. The firm probably owns a high volume of these “house stocks,” and as soon as the price rises enough for them to turn a hefty profit, they’ll sell. In the end, they’ll win out, and you’ll be left with a worthless portfolio.

However, a call from a stockbroker who legitimately wants to do business with you will be used to build a relationship so they can take you on as a long-term client, rather than trying to pressure you into a sale that you won’t have time to think about or research thoroughly before saying yes.

What Are Some Common Stockbroker Cold Calling Scams?

Dishonest firms may employ one of several strategies to convince you to give up your money. It’s important to know what tricks are out there so you can identify them for yourself.

Bait and Switch

Many scammers will use the bait and switch technique to build credibility with you. They’ll start with more reliable, less risky stocks that are likely to increase in value. All of your transactions will go through properly at first while letting you sell your assets for a profit.

Once they’ve hooked you, they’ll try to pressure you into investing more money. They might even transfer you to a more “senior” associate who has the right amount of experience to suit your financial needs. 

However, that new associate is actually just another aggressive salesperson who will try to talk you into bad investment decisions. The new stocks they offer might be extremely risky, or the broker might just disappear after getting your money.

Adding a High Mark-Up to the Stock Price

Another way brokers might try to take your money is by selling legitimate stocks at a high premium. They might give you a reasonable price for the asset but add several fees on top of that once you decide to buy. Since it’s illegal for brokers to charge excessive mark-ups without telling you beforehand, you’ll need to report these events if you find that they’ve done this to you.

Three-Call Technique

Similar to the bait and switch, brokers will use this strategy to make their firm seem more legitimate. Because they know many investors are going to be wary of a caller who aims to make a sale on the spot, dividing up into three conversations will help them gain your trust.

  • The broker will try to warm you up with the first call. They’ll tell you about their firm’s successes, aiming to sound knowledgeable and confident about the numbers and strategies.
  • They’ll try to set you up for the sale on the second call. They’ll tell you about a great deal they might be able to get you, giving you all of the details and lucrative profits that it would entail. They can’t make any promises, but they’ll do their best and let you know if it works out.
  • They’re going to try to close the deal on the third and final call. They’ll call you back and tell you that they got a hold of some assets, but you have to buy immediately, or you’ll miss out.

Making It Difficult To Sell

If they don’t disappear immediately after they sell, dishonest brokers will give you a hard time if you want to sell the assets you’ve bought. If they’ve sold you house stocks, they often won’t be willing to sell yours until they find another person who wants to buy them, but they probably won’t tell you that.

How To Identify a Scammer Broker?

If you get a cold call from a broker, the safest move is to hang up and ask them to put you on their “do not call” list. However, if you’re curious to hear more, there are some telltale signs that you’re listening to a shady pitch.

The Broker Won’t Stop Selling

Cold callers, especially scammy ones, don’t have time to have a long conversation with you and listen to your situation. From the second you answer the phone, they’ll start selling to you. 

They’ll have a quick response to every concern you bring up, and won’t leave any room for you to talk. Aside from this technique making for an exhausting conversation, it’s also a signal that this is probably a bad deal.

The Broker Uses Buzzwords to Overhype the Deal

If you want to find out if a cold caller is trying to scam you, listen for words and phrases that make the sale sound unrealistically good. They might call it a “once-in-a-lifetime opportunity,” or they might say that it’ll give you “guaranteed returns”. A real broker knows that there’s always a risk when investing money, so they wouldn’t use language like that.

A scammer might tell you that their stock picks are based on “inside” or “confidential” information, meaning that you’re getting a better deal with them than in the market. However, insider trading is illegal, so even if this claim was true, you’ll want to hang up.

The Broker Wants To Close the Deal Today

Giving you a time limit is a common tactic that brokers will use to discourage you from doing your research. If the deal that the broker pitches to you was that good, they wouldn’t need you to buy it immediately. 

For that reason, a legitimate broker might be more willing to let you think about your decision before you circle back and potentially work with them in the future. On the other hand, a scammer might get aggressive when you try to hang up.

What To Do if You Get a Cold Call From a Broker?

As mentioned earlier, investors should hang up immediately when presented with a stock deal from a broker over the phone. Even if it’s a legitimate offer, you’ll probably get a better deal by doing your research elsewhere, but if you’re curious or tempted to work with the broker in the future, you’ll want to make sure that they’re reputable.

One quick resource you can use to look into a broker is FINRA’s BrokerCheck tool, which allows you to research the background and experience of financial advisors, brokers, and firms.

Author’s Recommendations: Top Trading and Investment Resources To Consider

Before concluding this article, I wanted to share few trading and investment resources that I have vetted, with the help of 50+ consistently profitable traders, for you. I am confident that you will greatly benefit in your trading journey by considering one or more of these resources.

Conclusion

Like any salesperson, many brokers can be very persuasive. They’ll try to warm you up by asking you personal questions and finding common interests at first. However, it’s important to be wise to their tricks so you won’t fall into their trap. 

Even if you don’t hang up immediately, be wary of offering any information about yourself. Telling them anything might indicate that you’re interested and will make you a target for future pitches.

If you want to sign up for the national “do not call” registry managed by the Federal Trade Commission, you can register here.

BEFORE YOU GO: Don’t forget to check out my latest article – ‘Exploring Social Trading: Community, Profit, and Collaboration. I surveyed 1500+ traders to identify the impact social trading can have on your trading performance, and shared all my findings in this article. No matter where you are in your trading journey today, I am confident that you will find this article helpful!

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    Navdeep Singh

    Navdeep has been an avid trader/investor for the last 10 years and loves to share what he has learned about trading and investments here on TradeVeda. When not managing his personal portfolio or writing for TradeVeda, Navdeep loves to go outdoors on long hikes.

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