Brokers need to tell clients how their portfolios are doing

Staying Ahead

March 18, 1996|By Jane Bryant

NEW YORK -- What do investors need most from their stockbrokers? Not a good stock there are plenty of them and plenty of brokers to find them for you. You need information. You ought to be told exactly how well or how poorly your brokerage account is doing.

Most brokerage firms think that it's not in their interest to keep you informed. Your stockbroker should be able to call up your current performance on a computer screen. But this is something brokers rarely disclose.

Without information, investors tend to kid themselves. They think they're doing better than they really are.

But at last, one major firm is offering its retail clients a performance report. Prudential Securities mailed its maiden reports in January, along with its clients' consolidated year-end statements. Updates will go out once a year.

Customers of other firms should ask their brokers for the same. Also, write to the head of your brokerage firm. Other firms won't automatically copy Prudential's move, but they might if their customers speak up.

You may think that you're already getting a performance report, in the year-end statement that tells you what your various investments are worth. But that doesn't cut it. You need to know your whole portfolio's annual percentage gain or loss.

That's what Prudential is disclosing. The firm computes your gains and losses, adjusts for money going in and out of your account, adds in any interest or dividends earned, and gives you a percentage change.

For example, you might learn that, last year, your particular mix of stocks, bonds and mutual funds yielded an annual return of, say, 18.2 percent. That number is comparable with the published returns of mutual funds, of the Dow Jones industrial average and of other broad-based indexes of stocks and bonds. Maybe you're doing better than other investments you might have chosen, and maybe you're not.

Learning the truth doesn't mean you should fire your stockbroker if your performance is poor. First, you should reconsider your current investment style, the mix of stocks and bonds you own and how frequently you trade. Maybe you're playing around with too many cheap, high-risk stocks. Maybe you've put too much money in bonds.

Conversely, maybe your mix of investments is exactly right and you simply expected too much of it.

You can't even address these questions without knowing your true investment return. That's why Pru's new service is so valuable and why I hope other firms will follow. Some bad records are due to your own imprudent trading; others are due to bad brokers who have been sandbagging you about your returns.

Prudential's reports don't necessarily cover all the investments you have. For example, they leave out variable annuities, weird penny stocks that can't be priced, unit trusts held in safekeeping and futures accounts.

But they do adjust for the commissions you pay. Your total return, Prudential says, is based on the money you put up, not on your net investment after paying brokerage commissions. So the cost of investing is also factored into your investment return.

Not all Pru customers get reports. Their accounts have to exceed $5,000 and meet a number of other rules.

Customers of other brokerage firms may get performance reports today, if their money is run by an outside manager or if they have a huge account. You can monitor your performance yourself through a number of computer programs.

Or you can insist that your broker show you what his computer says about your account. William McCormick, director of Prudential's retail branch system, says brokers can give you a verbal disclosure, but nothing in writing until year-end.

Next, I'd like to see Pru (and any copycat firms) disclose the total amount of commissions and markups that customers pay. (Brokers mark up a stock when they buy it at one price and sell it for a higher price.) That way, you could compare your gains with your stockbroker's gains.

If your broker makes more than 3 percent of the average value of your account, maybe he or she is trading too much, and at your cost, Thomas Benson, president of Stock Broker Analysis in Naples, Fla., told my associate, Kate O'Brien Ahlers.

Failing this, you should keep all the confirmation slips, which come after a trade is made and show the broker's commission on the purchase or sale. Add them up at the end of the year and make the comparison yourself.

You can write to Jane Bryant Quinn at: Newsweek, 444 Madison Ave., 18th floor, New York, N.Y. 10022.

Pub Date: 3/18/96

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