Star investor Warren Buffett, chosen interim chairman of Salomon Brothers Inc. in the wake of its scandal over improper government securities trading, quickly issued a warning to employees when he took the helm. If they do anything to further tarnish the reputation of that Wall Street firm by violating rules, Buffett said, he promised to be ruthless in dealing with them.
This warning from a wise Nebraskan who has made a personal fortune from shrewd and honest investment is, of course, a breath of fresh air. It understandably has been applauded in investment circles. But emphasizing the need for investment morality underscores once again an unhappy, but related, point: Americans don't trust Wall Street and don't trust a lot of brokers either. Maybe it started with the first stock market crash, then worsened with the 1987 crash. Perhaps computerized trading has made folks wary. Publicity given to inside traders Ivan Boesky and Michael Milken didn't help matters.
The fierce battle for business has had its down side in hard times. Many investment houses and brokers now fill up mailboxes with solicitations for business to the same degree that pizza delivery firms do. Meanwhile, penny stock scam artists have been reined in considerably, but their negative image remains.
Bringing problems of the nation's financial industry to the surface helps in the long run. It's a cleansing process. But with investors concerned about who they can really trust, it's never been more important to select one's broker carefully.
Many stockbrokers and their firms are top-notch, dedicated to their clients. Yet no one wants to wind up with a "bad-egg" broker who will put them in unsuitable investments.
Picking among the nation's 450,000 registered representatives requires care. Visit brokers at several national and regional firms before deciding on one. Choose a firm that's been around for 10 years or more with a solid track record. Find out if your goals and manner match the broker's. Ask about his experience and how (( he selects investments. Request client references and determine the size of commissions you'll be charged.
A source of information on disciplinary action against a broker is the National Association of Securities Dealers (NASD), which keeps information on action taken by the Securities and Exchange Commission and the stock exchanges.
If you contact the NASD, there's a two-page form for the public disclosure program and, within a couple of weeks, you'll receive the broker's disciplinary record if he has one. The first two requests within a three-month period are free, the third $20. Contact the NASD's public disclosure program by writing P.O. Box 9401, Gaithersburg, Md. 20898.
Too often, investors don't know what they want. The role of the broker has expanded from simply a stock picker to more of a financial adviser, but it is still the investor who must have set basic goals to work with. You must set the pace as to how often you'll deal with the broker and how frequently you'll trade.
Although it will never be possible to do away with all flaws in the system or opportunities for wrongdoing, Wall Street still provides enormous potential for the individual investor.