NetTrade

• Things You Need to Know About Brokers

  The immortal William Shakespeare once said, “The first thing we do, let us kill all the lawyers.” Most may not realize it, but brokers are just as slithery and cunning as their mates who passed the bar. In that case, just replace lawyers with brokers and you have a quote that is right for this millennium.

  Why all the hate with brokers? Searching for a viable topic for a new entry, I scoured online to look for things you need to know about the current market. What came out were a hodgepodge of results from real estate, mortgage, stocks, and investments. That was kind of broad.

  And then I saw a trend with how much hate are spewed against brokers. My search was not that extensive, yet there were a number of pages about brokers from hell and what they do which came up on top of the listing.

  What makes them evil? Think of how you would treat a used car salesperson. You are eternally on doubt, questioning everything because you just do not trust his guts. Now, think of how someone would approach a professional financial analyst. His opinion is revered, everything he says swallowed hook, line, and sinker. Well, most do fall into that trap. The thing is the two professions work nearly the same way.

  To clear things up though, there is nothing wrong interacting with brokers per se. They still know more about the market in general than you do, so some of what they say actually counts. The beef here is when brokers from firms suffer from an apparent conflict of interest, doing action that benefits more the brokerage firms than their clients.

  That is just plain wrong. How? Because by doing so, they are merely like salespeople that instead of selling used vehicles, they hawk to you stocks and other forms of investments that upon further scrutiny, helps his company more than you do as a client. Where is genuine service there?

  What are some of the wicked methods they do? First of all, they earn off directly from you through markups and markdowns. This is besides the fees and the commissions that you pay to them off the bat. If you are savvy enough, you could do away with brokers so that you would not need pay for markups.

  Another thing that brokers do is that they force you to buy bonds from their inventory over another helpful and more investor-friendly bond. This way, the brokerage firm gets to unload its inventory, while at the same time, the broker gets more perks for every successful transaction involving in-house bonds.

  A sly tactic they adopt, especially done on those who are not in the know, is that they take advantage of calls. These are bonds who are nearing the call date of the issuer. What brokers do is that they sell you a bond that is nearing its call date, then later tells his client that the call date is due so that the investor would unload his money and put it into another bond. This is what they call as double dipping.

  Why would someone force another to buy something that would cost more when there are cheaper alternatives available? Only salespeople do that. That is why there are cases where the investor shells out more money than he needs to.

  Why this way of thinking among brokers? First of all is sales pressure. Since somebody above them is dictating what they need to do, brokers are pressured to perform and produce preferable results.

  Another probable reason is laziness and ignorance. They do not bother gathering new information and learning more, thus, making some of their advices outdated and obsolete.

  Nevertheless, there are ways to get out of the rut. It is inevitable to ask for professional opinion. A recommendation when looking for a financial advisor is to go indie. Independent brokers exist and they are in most cases free from conflict of interest because there is no higher up dictating to them what to sell or what to do.

  As much as possible, avoid junk bonds. They are risky and unstable since they are nearing their call date. Another way to do intelligent investing is to diversify your investments. Mix your portfolio with large companies and small companies, growth companies and value companies, and local and international companies.

  It is good to keep an open mind, especially when dealing with your finances. Ask if you have to and do not stop until everything is clear to you. Inquire how the broker would be compensated from making a sale. Determine if he would receive non-monetary perks in addition to the commission when there would be a successful transaction.

  Finally, your advisor would not get hurt if you ask him for other options. Remember, he should put premium to your needs more than anything else. If he starts to become pushy and insistent on particular accounts, put your guard up or ship out.

  Put into mind also that some things are probable but not guaranteed. This just says is to take a careful calculated risk before jumping in.

  Posted in Brokers

  April 15th, 2008 / No Comments

• Choosing a Broker

  Starting your investment portfolio requires rendering the service of a broker. However, not all brokers are the same.

  There are two kinds of brokers: the full-service broker and a discount broker. Getting a “full-service” may sound like something you should have, but what does he do to your finances? Does it cost you anything at all?

  Here are the responsibilities between these two types of brokers.

  FULL-SERVICE BROKERS

  PROS

  • They usually work for large brokerage houses such as Citigroup, Merrill Lynch, Morgan Stanley, etc. Aside from executing trades on behalf of their clients, as what all brokers do, a full-service broker would also research various investments and give related advice.
  • Keeps you up-to-date with market trends, stock performance, and tax laws, while providing you with investment ideas and recommendations.
  • Recommended for those with significant portfolios and those who wouldn’t have the time to manage his finances.

  CONS

  • Unless you have a slightest idea about the ins and outs of financial investing, you won’t know whether you are getting advice for your own benefit or for the broker to take your money to his pocket.
  • There is no guarantee a full-service broker is any better than you are at choosing investments.
  • You pay a hefty fee for these services, not advisable if you are starting to build up your portfolio.

  DISCOUNT BROKERS

  PROS

  • Discount brokers usually work in E-Trade, Sharebuilder, Fidelity, TD Ameritrade, etc. They often make more sense for the average investor because they are more affordable.
  • Recommended for investors who want to have a final say on every financial decisions.

  CONS

  • Discount brokers deal in a particular type of investment such as stocks, bonds, mutual funds.
  • You need to review the schedule of fees to find out whether you are paying for commissions, account maintenance, and other fees.
  • Not all discount brokers offer the same services.

  Once you have chosen your brokerage, download the application forms from its website and send in the completed forms with a check to fund your account. You can begin trading as soon as the account is open.

  Brokerages may require a minimum balance ranging between $500 to $2,000. If you are opening an IRA (Individual Retirement Account), they may waive the minimum requirement.

  Posted in Brokers

  July 27th, 2007 / No Comments