Full Service Stockbrokers

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You can find full service stockbrokers at the most well-known and established companies, including

Salomon Smith Barney
Morgan Stanley
Goldman Sachs
Merrill Lynch

For all their eminent reputations, however, brokerage firms use a substantially different track for selling stock than the average investor would think. The company that uses the expression about making money the old-fashioned way ” earning it ”isn't lying. They just didn't specify for whom they were making that old-fashioned money.

Bluntly put, stockbrokers have to make a living, too. And that lifestyle isn't cheap. Did I mention that full service brokers also charge the highest commissions? I've heard of full service brokers who charge up to $75 per transaction. Even though the average investor may be aware of these commissions, what goes largely unsaid is the other ways in which stockbrokers make money or further their business.

You should know upfront that in all fairness, full service brokers and brokerages have their uses and place within investment. Many people, for a variety of reasons, do utilize the services of full service brokers and brokerages and do very well by them.

For example, someone with enough money in the market to prohibit the time needed to effectively keep track of investment trends (because the person is using all that time to make the money that's being invested) would make a good candidate for a full service broker.

Also, someone who was planning to buy and/or sell on a daily basis is an example of someone who might fare well using the services of a broker. Although this type of client, however, would still do well to consider excessive service fees involved in these kinds of services. In addition, most stockbrokers aren't dishonest and do play upfront with their clients . After all, unhappy clients will leave sooner or later, so it's in the stockbroker's best interest to keep them happy.

The average stockbroker, however, does have to make a living. So, for example, a stockbroker with his or her huge wealth of knowledge tells you that purchasing stock in XYZ Company is the single best thing you can do. You invest as the stockbroker tells you to; after all, who are you to second-guess the stockbroker? You're a dentist with little or no knowledge of how all this works, whereas the broker has years of experience and access to a substantial amount of firm research ” usually from within the brokerage house itself. So, the stockbroker takes a commission for placing the purchase order. The stockbroker is happy; you're happy. What could be wrong?

Did the stockbroker mention that the reason you should buy XYZ Company stock is also because he or she needs to sell a certain amount of XYZ Company's stock in order to retain his or her account, and the broker was running pretty close to the end of the month without having reached that quota? Or did the stockbroker mention that the company is giving him or her a cut of the sale out of the backside for each share the broker places with a client? The stockbroker wasn't lying about XYZ Company stock being the best purchase you could make. The broker just failed to mention that the payday was his or hers, not yours.

Also, the "research" that you thought would make a difference, and that went largely unnoticed in this transaction was flawed anyway. The analysts who compile this research are under extraordinary pressure from upper management as well as from the clients themselves to back up the interests of the company. Not necessarily to lie, mind you, but to present the information in its best ”or in the case of the competitor, the worst ”possible light.

CAUTION

A full service broker usually manages his or her client's account directly and charges the highest commissions.

And finally, from personal experience, many people develop a good working relationship with their brokers and a strong sense of loyalty keeps them as clients. Even in these situations, however, be aware of the whole story.

The Loyal Loser

For example, I personally fall into that last category. A couple of years ago I hired a full service broker from a well-known firm for some of my accounts. She was a nice young person, and I liked her so much that I was loath to leave her even though I consistently lost money with her management. I took the losses without saying a word, because I figured we were friends . So did she ”until she got a promotion and turned over all her portfolios to a replacement. The new broker was even nicer and friendlier than the first, but she was a goner before she unpacked her nametag. I closed my account immediately.

The point here is that I was looking to make a profit, not new friends. The first broker, really, was a nice person, and probably used a lot of that friendliness to keep clients such as me. She certainly wasn't keeping clients because of the profits we were making.

As for the second broker, I never lost a cent, but that was because I finally wised up to the fact that I was keeping these professionals on my payroll because they were friendly, not effective. Who would keep a plumber on staff when all the faucets still leak? In all fairness, the replacement broker may have been poised to make me a great deal of profit, but I had decided by that point to take control of my money and manage it myself .

Cutting Your Losses

I lost a friend, but I'm not losing money anymore. I should also point out that the investments I made on my own during that time made excellent gains. And what's most relevant about that example isn't so much the broker story as it is the fact that I made more money by managing my own investments. Had I lost more money through my own transactions, that would have been okay, too. At least I would have been responsible either way since I was making my own decisions regarding my money.

The point is this ”control your own money in all aspects. This means that even if you do hire a professional to help you, you are still responsible for ensuring that the person you choose is effectively doing exactly what you hired him or her to accomplish. Make sure then, that you periodically reevaluate their performance. Don't get sidetracked by things like emotion or friendship. As with any professionals, if they are not cutting the mustard, get rid of them and hire someone better.

I l @ ve RuBoard