(FORTUNE Magazine) – HAPPY WITH your broker? Probably. The market has been good to most investors over the past 11 years, and odds are you're dealing with a well-trained and ethical professional who takes his job seriously. But since brokers normally get paid in proportion to the frequency, size, and type of your transactions, not their outcome, some are bound to risk customers' well-being for the sake of commissions. And as a securities attorney, I've seen that when things go + wrong, customers don't just shrug. Investors brought some 6,464 arbitration claims against U.S. brokerage firms in the 18 months ended June 30, 1990 (the latest period measured), says the U.S. General Accounting Office. These complaints alleged a wide variety of wrongdoing by stockbrokers, usually misrepresentation or negligence, as well as unauthorized trading and recommendation of unsuitable investments. Damages claimed: about $1.2 billion. One-third of investors settled, and more than half the rest were awarded damages averaging 60% of what they claimed. Says the Securities Arbitration Commentator of Maplewood, New Jersey, a leading compiler of arbitration data: ''The amount of money in play in these arbitrations is starting to stagger the senses.'' Happily, you can head off many of the most common problems. Just remember, the key word is you. Government regulators are overburdened. Brokerage firms are supposed to supervise their employees, but diligence varies widely from firm to firm -- and from branch office to branch office. Having represented novice as well as experienced investors in arbitrations, I offer five rules that all investors should follow to protect themselves. Doing so will reduce the odds of a problem and strengthen your position if one arises.

-- Rule No. 1: Put it in writing. Correspondence between customer and broker before any problem arose is often the most important and persuasive evidence of what really transpired between them -- of what each said, wanted, or agreed to do. Given the importance that lawyers at arbitration hearings always attach to predispute correspondence, I'm often struck by how rarely customers write their brokers outlining their circumstances and goals. Brokerage firms, by contrast, usually follow standing procedures for generating a written file that will support their position in the event of a problem. My advice: If you have conservative, risk-averse goals, tell that to your broker not just over the phone or over lunch, but in writing. It will become a part of your file and preclude any revisionist argument that you really wanted to follow a more aggressive, risk-oriented strategy. If you are thinking of making an investment on the strength of an oral assurance from your broker, write him a letter confirming what he told you about it. You don't need to send it by certified mail, but be sure to keep a copy. If your broker suddenly has a problem with your quoting him -- or if you somehow ''misunderstood'' what he now tells you he meant -- better to find out today than next year, when the investment might be down 50%.

-- Rule No. 2: Don't routinely sign margin agreements or option agreements. Many a distressed investor has told me that when he opened his account he signed a margin agreement or even an option agreement without giving these documents any thought -- they just seemed part of the initial paperwork. Sometimes it took substantial losses to alert the customer that by signing these letters he had agreed to engage in strategies that are only for highly experienced (and deep-pocketed) investors. If you understand options and buying on margin, you know they often increase your potential gains -- and potential losses -- by increasing your risk. If you don't understand them thoroughly, isn't that reason enough not to use them? Of course, you may know exactly what you're doing with margin accounts and options and want to use them. If so, go ahead and sign -- but don't forget Rule No. 1. Write your broker telling him why you are signing these agreements, specifying the purposes you have in mind.

-- Rule No. 3: Don't sign ''activity letters'' without independent advice. When a customer's account starts showing heightened activity -- say, more than five trades or over a couple of thousand dollars in commissions in a month -- defense mechanisms kick in at most brokerage firms because they have learned that lots of trading and large commissions correlate significantly with future problems that wind up in arbitration. The firm may first ask the broker for a memo explaining the activity -- which may well have a perfectly good explanation. But if the activity persists, firms often send letters to the customer (because they've heard of Rule No. 1), usually containing seemingly bland comments about the activity in the account, which they ask the customer to sign and return. Depending on the risks taken and losses sustained, the firm may send a series of such letters, which become progressively more pointed. Called ''activity letters'' on Wall Street, they are meant to advance two somewhat contradictory objectives: first, to alert the customer -- without unduly alarming him -- that some aspect of his account gives cause for concern; and second, to give the brokerage firm proof, in the form of a letter you signed, that you approved of everything that went on in your account up to then. The smart advice for the investor is simple: Don't sign a letter like that until you're sure you approve of what has happened in your account, and don't be so sure you approve until you get a knowledgeable opinion. Remember, your broker can't make you sign such a letter. The worst that could happen is that the firm may refuse to allow further activity in your account -- which could turn out to be a favor.

-- Rule No. 4: Know your rights if your broker has made an unsuitable recommendation. Securities brokers are not simply salesmen who can legally sell you whatever they think or hope they can persuade you to buy. To the contrary: Brokers have a professional obligation, set forth in the regulations that govern them, to ensure that every recommendation they make is suitable for the customer to whom it is made. If a broker recommends an unsuitable security, whether out of desire to generate a commission or some lack of professional expertise, he can be held liable for losses that result.

Many suitability cases involve a broker's recommending investments that are too speculative -- for instance, putting short-term money into the volatile stock market. But unsuitable transactions can occur even if the product sold isn't highly risky. In a case I handled this year, my 60-year-old client had been sold a seemingly conservative investment, a variable annuity with a life insurance feature. The problem: This client had no dependents and no particular need for an investment vehicle with a life insurance kicker, yet he was sold a product whose insurance costs would severely reduce the investment's return and possibly erode the client's principal. The broker could have generated a similar commission if he had sold a more appropriate product, and so may have been more negligent than venal. Yet an arbitration panel awarded the client over $200,000 to compensate for his lost investment earnings.

-- Rule No. 5: Review your account statement every month, and act fast if you spot a problem. Even if the statement looks forbidding, zero in on the dollar figure showing the account's equity, or net worth, and on the listing of activity for the month. If the equity figure shows your portfolio being depleted by excessive commissions or by high-risk investments that are underperforming the market, you want to know right away. A word of warning: Ask your broker if your entire portfolio is priced each month at its then- current market value. For years some brokerage firms showed the value of limited-partnership investments at cost rather than actual market value, leading many investors to believe, wrongly, that the partnerships were still worth as much as they had paid for them. In reading the statement of monthly activity, do you see anything shown as having been bought or sold that you don't remember buying or selling? If so, it could be an unauthorized trade, one of the worst offenses in the industry (cited in one-fourth of all arbitration claims). This offense can occur anytime a broker decides to abandon the ethics of his profession; even at firms with the best internal monitoring systems, supervisors usually have no way of telling the difference between a trade the customer has ordered and one the broker has entered without permission -- unless the customer complains. So if it happens, complain immediately. A standard brokerage firm defense to a delayed claim of unauthorized trading is the assertion that the customer ratified the trade by waiting to see how it turned out before complaining. Again, don't forget Rule No. 1: Put the complaint in writing. Don't ever fall into the trap of excusing or condoning any unauthorized trade, even one that was profitable or one that your broker claims he did ''with your best interests at heart'' when he couldn't reach you by phone and the market was moving up. If you accept that trade, what will you say when one day there's a big loss on a similarly unauthorized trade, and your broker responds to your horror by saying, ''You didn't complain the last time, when you made some money -- now did you?''

Anyone can follow the self-protective suggestions outlined above. While they can't eliminate the chance you will fall prey to unscrupulous behavior, they can greatly enhance your security by ensuring that, at least, the record of your financial objectives and of your conduct in pursuing them is clear and unassailable in any dispute that might arise.