Fire your broker? Sure, but look at yourself, too

Relationship: The one with a broker is complex. If it's gone sour, the client must realize it, and act.

Dollars & Sense

October 28, 2001|By Bill Atkinson | Bill Atkinson,SUN STAFF

Why do investors fire their brokers? For the same reason people divorce.

"Lying, cheating, stealing, irreconcilable differences," said Marc Beauchamp, executive director of the North American Securities Administrators Association Inc., a Washington-based lobbying group that represents state securities regulators. "Like marriage, it is a relationship that takes a lot of work and vigilance and communication."

There are 678,829 brokers in the country who sell stocks, bonds and mutual funds, manage money and earn fees and commissions.

Some do their job well and others don't. Yet, deciding when to fire a broker can be confusing and stressful, experts say.

James Spellman, a spokesman at the Securities Industry Association, a Washington-based trade group that represents brokerage firms, said there are signals that should help an investor determine whether it's time to part company.

"If you don't get along with the guy or woman. If they don't answer your phone calls. If they only call you when they want to sell you something," Spellman said.

"You should make sure you can work together, and see them as a partner in your long-term financial success," he added. "That they are not just calling you to do a transaction, that they are calling you in bad times and in good."

Leslie Silverstone, a former broker and an advocate for ethical behavior on Wall Street, said investors must also ask themselves this simple question: "Why am I using this person?

"There are a lot of people dealing with the wrong broker, the wrong lawyer, the wrong accountant, the wrong doctor," he said. "I think that is a very applicable question to ask. Who is managing your money has got to be a top priority. When you are talking investments ... it is a big decision."

Investors shouldn't wait for problems, but rather keep lines of communication open, experts said. They should also not be afraid to ask their broker tough questions.

"We keep cautioning investors to really grill their broker on, `Why are you recommending this? How is this suitable to my situation, to my financial goals, to my financial risk?'" said John Nester, a spokesman in the office of investor education at the Securities and Exchange Commission in Washington.

The number of complaints sent to the SEC regarding brokers increased 9.9 percent last year to 13,280.

Robert F. Mewshaw, a former stockbroker and now president of Van Sant and Mewshaw, a Lutherville money manager, gives clients a pamphlet on questions they should ask their broker.

The questions include: How much did I pay in fees and commissions last year? Is the broker paid a fee for service or does he receive a commission? Does the broker have authority to buy and sell stocks in my account without contacting me? Is the broker eligible for prizes?

"If you are going to have a solid relationship with a broker and an honest relationship, he should not be afraid to discuss the cost," Mewshaw said.

Some experts believe that brokers who are paid commissions based on the amount of stocks, bonds and mutual funds they sell have a built-in conflict of interest. The more they sell, the better for them and their firm. Big sellers, or "producers," can win vacations and other prizes.

"If you [the broker] don't sell them something, you don't make a penny," Silverstone said. "He has got to make his time count. The broker, because of the way he gets paid, is not free to leave you be. He is not free to just let you sit there. He is not free to recommend the whole rainbow of investments. [If] you walk in with $10,000, and I tell you to put it in Treasury bills, I don't make a nickel."

Poor performance is an obvious reason to fire a broker, but determining how well the broker is doing is another matter, Mewshaw said.

"How do you know when you have bad performance if you don't understand how to judge it?" he said. "If you have a stock account and you judge it against the Standard & Poor's index and your account is up 2 percent and the index is up 12 percent, obviously you have got a problem."

Mewshaw advises investors to calculate their own performance, because brokerage firms are not under any obligation to provide investors with full disclosure, whether it is cost or performance, he said.

"It is amazing, most investors think they are doing fine, yet they can't tell you what their rate of return is; they don't know what their investment costs have been, what kind of return they had," he said. "These are basic, elementary things that you should do before you invest a dime."

Baltimore Sun Articles
Please note the green-lined linked article text has been applied commercially without any involvement from our newsroom editors, reporters or any other editorial staff.