Six Tips When Dealing with a Stock Broker
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1. Once you’ve hired a broker, keep an eye on him or her. When the broker recommends an investment, find out why. You want to be sure that the investment fits your needs and isn’t just one the broker is touting to earn a fatter commission. From time to time, some brokerages offer sales incentives such as contests with prizes if their brokers sell a certain amount of a particular investment, such as a specific stock, mutual fund, limited partnership, or annuity. Most firms also increase broker’s commissions if they sell stocks that their firm is eager to clear out of inventory or if they sell their own in-house mutual funds rather than other funds. (A few brokerages, prodded by the Securities and Exchange Commission, are moving away from such practices).
2. When your broker recommends an investment or you have one you want to buy, be sure to ask whether you’re eligible for a discount. For example, if you invest at least $25,000 in a simple mutual fund, you may qualify for a so-called break point that lowers the commission you pay by 1 to 1 ½ percentage points. When buying stocks, ask if your brokerage firm can shop around various dealers who make a market in given securities in order to get you the best price. Most full-service brokerages also authorize salespeople to slice trading commissions for their best customers by 20% to 50%.
3. Make sure you get your money’s worth from your broker, too. If you’re paying for the services of a full-service broker, you ought to be receiving research reports on investments that interest you –from the brokerage’s own analysts or from outside firms such as Standard & Poor’s, Value Line, and Morningstar. Feel free to ask your broker questions about the outlook for the economy and the securities markets, if you trust his or her judgment. Always discuss your investment strategies and concerns. At least once a quarter, review your portfolio with your broker, identifying investment winners and losers and plotting future moves.
4. When your broker suggests a particular investment, ask if it could be especially difficult or costly to unload later. If it could, then may well be an investment you can do without. For example, you might be stuck with a limited partnership for life. With annuities and some mutual funds, your problem could be the cost of selling your holding. For example, if you sell shares of some mutual funds within five years, you’ll get hit a fee of 1% to 5%.
5. Resist efforts by a broker to trade too often. Because brokers earn a commission on every sale, they have an incentive to encourage trading. But you’re almost always better with a buy-and-hold strategy. If you sell an investment within a year or so, brokerage commissions may eat up any profits. To discourage your broker from churning your accounts –that is, trading actively simply to rack up commissions –ask him how long he expects you to hold any investment and why. Being so conscientious will convince a broker that if he has any churning impulses, you’re not interested. One last point: Never let your broker trade without your approval.
6. What should you do if you have a dispute with your broker? First, take a deep breath, since getting brokerage wrongs righted is not easy. Don’t sit and stew. Federal law says claims against brokers must be filed within three years of buying a security or one year of discovering a problem, whichever is less. Some states give you more time, however. Start your battle by complaining to your broker directly. If that strategy doesn’t work, meet with the brokerage’s branch manager and write a letter to the firm’s regulatory compliance department, spelling out your problem. The more precise your complaint, the better. Merely saying that you lost money or you don’t like your broker won’t get you anywhere. But if you demonstrate that your broker took your money and put it into investments that weren’t suitable for you or churned your account, you may have a solid case. If your complaint remains unresolved two months later, escalate by consulting a securities lawyer. For details about going to arbitration or through mediation, usually your only recourse under a standard brokerage agreement, call the National Association of Securities Dealers at 212-858-4400. One arbitration tip: Be sure to insist on a face-to-face hearing. You’re more likely to win when arbitrators conduct a formal hearing rather than merely review documents submitted by both sides.
Thanks to MBH for calling me a big liar, I’ve now changed the title *laughs* to reflect my content. Recent government bailouts sometimes drive people nuts..and forgetful 
. Oh by the way, I’ve joined the latest Finance Fiesta Carnival, please check it out that MBH’s blog.
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4 Responses to “Six Tips When Dealing with a Stock Broker”
Thanks for the tips. Do you think it’s better to hire a professional stock broker or to set up your on etrade account. There are still transaction fees but probably less than broker fees would be.
Craig
http://www.budgetpulse.com
By
Craig (Who am I?) on Sep 18, 2008
Craig,
Although online stock brokers can offer some great cost savings, the fact is they are not human begins. While people might be behind the scenes and still available to glean advice from, those who buy online won’t have the ability to create a one-on-one relationship with their broker. For some investors, this loss is not worth the price savings in brokerage fees. Additionally, computer downtime can cause problems for clients who want to buy now or sell now. If an Internet connection isn’t available, there might not be someone to call in the order to.
Although using online stock brokers comes with both ups and downs, the reality is this is a great way for almost anyone to get involved in investing. If sites are chosen carefully, it’s possible to overcome and work around the potential pitfalls, making this a solid choice for investing that many pursu
By
moneyexpert (Who am I?) on Sep 19, 2008
This blog is really nice and informative. We are pleased to know this blog is really helping people.
The major reason for the downfall of the stock market are:
1. There are macro factors that affect a stock market. Big players in the market always invest lows and sell highs.
2. With inflation going through the roof large investors may have moved from equities to commodities
3. There’s also a latest fear that the Indian growth engine has taken a pause. Afterall if the GDP (industrial production) does not grow as expected, once cannot assign the same valuations to a stock
By
BSE tips (Who am I?) on Oct 2, 2008