Ken & Daria Dolan
For more than 20 years, Ken and Daria Dolan have been the trusted source for real money solutions for people just like you. And now, you can have unprecedented access to this wisdom through their new website, Dolans.com. They tell it like it is, and their message is clear: You have to take control of your money, and you don't have to be afraid. You can do it, and Ken and Daria are here to help.
Beware These 5 Broker TricksJune 17, 2008 By Ken & Daria Dolan, Dolans.com |
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Daria and I both started our careers as stockbrokers. But times sure have changed since I took the New York Stock Exchange exam in 1971! There are many more products for brokers/financial planners to sell and much more pressure to sell them—lots of them.
With a combined 40 years in the business, we've seen just about all the tricks of the trade (excuse the pun!), and we're about to reveal some of the worst. In addition to our own experience, we talked to a number of brokers with the promise of anonymity.
Here, then, are a few investment pitches that should trigger your suspicion:
Your broker breathlessly calls with an exciting stock tip that you can buy "without a commission." A golden opportunity? Unlikely.You're probably being pitched a security owned by the brokerage firm. Does that mean it's a bad stock? Not automatically ... but it does mean the broker is receiving a "commission credit" to sell it to you. Plus, the firm may mark up the price to make up for the higher commission they pay the broker.
Some deal! If you're interested in the "no commission" investment, call another firm or two and compare costs.
We are not fans of in-house products for three reasons: 1) a broker may get a higher percentage of the commission for selling you one of these products; 2) many of these funds underperform similar "non-brokerage" funds; and 3) if you decide to transfer your account to another brokerage firm ... too bad ... the new firm generally won't accept a competitor's "in-house" funds. You'll be forced to either leave the mutual fund(s) at a firm you no longer want to do business with, or sell the funds right then and there. Two bad alternatives!
At Dolans.com, we've warned our readers about end-of-the-month pitches by car salesmen ... beware the same from brokers. Some unscrupulous brokers will "churn and burn" their accounts toward the end of the month, especially "discretionary" accounts where a client has authorized the broker to buy and sell at his discretion. That's one reason we don't ever want you to grant discretionary power to your broker!
Every month, many major firms total a broker's commission for the previous 12 months to determine a broker's "payout" (his share of the commissions) for the following month. Low level of commissions = low payout. If you see a pattern of "end of the month" recommendations from your broker, it may be time to switch brokers.
Why? Is it because the resources of the new firm will help him better service your account or is it because he's receiving a large, up-front cash bonus for bringing his "book" of accounts (including you). Be especially wary of the hard sell during those initial months after his move. Firms often offer brokers a "recruiting" package that includes a higher payout on trades made in the first three to six months with the new firm. (Do you feel a twinge of distrust here?)
Ask your broker flat out, "Are you trying to qualify for a sales contest prize?" If the answer is yes, make him prove to you in writing that the investment matches your objectives. (If he lies, you can hold it against him later if necessary.)
Well, I guess by now we've guaranteed ourselves a lashing next time we're on the floor of the New York Stock Exchange ... just kidding. Those brokers/financial planners who are truly committed to helping you–and there are many of them out there - won't mind that we shared this information with you.
Our mantra is and always will be: Nobody looks out for your money the way you do, so take charge. Ask questions. Demand answers. And remember, we're here to help!
Be sure to visit Dolans.com for much more important information on how to invest wisely. You'll discover How to Hand-Pick a Top-of-the-Line Broker, 3 Simple Steps to Selecting the Right Mutual Fund, our 10 Simple Rules of Investing, and much more!
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