Max's Investment World Stock Market Challenge
Full-Service Brokers a Misundersood Lot
Stock brokers who work at places like Merrill Lynch and PaineWebber
are a misunderstood lot. Some experienced individual investors
say that their commissions are too expensive or that brokers
are at best order takers and at worst, thieves who frequently
buy and sell customers securities to make a quick buck--a practice
known as churning.
It's true that there are some lazy brokers, or brokers who churn
accounts or put their clients in the wrong investments. But
there are plenty of honest, experienced brokers as well who do
a great job for their clients. The real problem is lofty expectations
on the part of clients.
Like doctors' patients, clients of brokers expect way too much.
They expect brokers to divine the future direction of stock prices,
know why stocks are going up and down every minute, take them
to fancy restaurants, and get their kids a summer job on Wall
Street. Mostly, however, clients expect their stock brokers
to magically make them a pile of dough. That's just not going
to happen by itself.
The broker takes her cue from the client. And just like a psychiatrist,
a good broker tries to educate a client so that she can understand
the risks and rewards of the investments she is getting into.
The broker is also responsible for disseminating research undertaken
by the securities firm she works for and making it relevant and
understandable for the client.
It's quite possible that an individual who invests for herself
via a discount broker or directly in mutual funds can do just
as well or better than someone who has a full-service broker.
Indeed, by eliminating hefty commissions, a solo investor has
a head start. But the solo investor must work much harder at
understanding investments and interpreting news about them.
A solo investor can't turn for help and get a fairly immediate
answer. A solo investor must, instead, hold her own hand as,
at times, stock prices tumble hundreds of points.
Bottom line: Plenty of people know that they should be invested
in stocks or stock mutual funds but are too nervous because they
don't know enough about the risks they pose and how they can
be diversified. Brokers can and do help them to understand,
and by doing so, help them accumulate respectable nest eggs.
Go to $Idea Central for more
investment ideas!
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