Choosing a Stockbroker
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The word: “stockbroker” has almost gone into extinction on Wall Street. Today, brokerage firms like to call their employees “account executives” or “account specialists” or “financial consultants” or nearly anything other than stockbrokers. Somehow, “stockbroker” has taken on a connotation of a narrowly focused, money-grubbing, cold-calling salesman whose sole interest is in making money for himself, not his clients. While some stockbrokers out there may be like that –actually, there are undoubtedly quite a few like that –many of the nation’s 94,000 brokers truly want to make money for themselves and their clients. That’s the kind of stockbroker you want to find.
Sadly, recent studies suggest that the stereotype is all too true, particularly if you don’t have much money to invest, you’re young, or you’re a woman. Many brokers, it seems, prefer to deal with older, male customers who are loaded. One example of broker bias: In a recent MONEY survey of 21 leading full-service brokerage firms, brokers failed to ask about the investment history of 25% of their female customers versus just 10% of the men. Another MONEY broker’s survey found that when men and women walked in off the street with the same amount of cash to invest, the men got an average of 47 minutes with brokers while the women got only 38 minutes. More distressingly, in these surveys the brokers frequently failed to ask questions of many potential clients regardless of their age, sex, or income. For instance, 42% offered advice without asking customers about their tax brackets, and 39% forgot to inquire about household income. Roughly a third failed to find out about their customer’s tolerance for investment risk of their financial goals. The surveys also showed a fair number of brokers pushing commissions for them. One reason: In-house offerings such as the brokerage’s own mutual funds often give brokers 2% to 5% more in commissions than others. These surveys, incidentally, showed no clear difference between salesmen at big brokerages and ones at smaller firms. Clearly, when looking for a broker, you need to do a fair amount of weeding before you can plant your dollars.
After getting the names of brokers recommended by people you know, do a little research on them –even before you meet any face-to-face. You’ll want to be sure that the broker hasn’t done his customers wrong. The best way to do this is by calling your state securities administrator (the phone number is in your phone book) and the National Association of Securities Dealers (800-289-9999). Ask both if the broker is licensed in your state and if there have been any complaints or disciplinary actions taken against the broker.
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3 Responses to “Choosing a Stockbroker”
I tend to stay with mutual funds with my Roth IRA. I haven’t accumulated enough wealth to warrant actually using a broker. The individual stocks I do own I bought directly from the Company and they were blue chips. i.e. Proctor and Gamble and General Electric. Thanks for the advice though I am going to keep the phone number in case I do need it!
By
Dave Jones, CPA (Who am I?) on Sep 12, 2008
I wouldn’t say Brokers are completely useless but I really recommend that most people just go ahead and open up their own brokerage account online.
1.)It’s cheaper
2.) it’s about as hard as turning your computer on
3.) It’s cheaper.
By
Jake@Compounding-Dividends.com (Who am I?) on Sep 13, 2008