Share this article

print logo

FINDING A BROKER MORE COMPLEX THAN EVER, THANKS TO TECHNOLOGY

You're tired of feeling like an outsider while all those tantalizing daily stock recaps trumpet the market's record heights. No more standing on the sidelines, you say. Time to break into the action.

But before plunging into the vaunted bull market of the late 1990s, you've got to shop for a brokerage firm to handle your stock and mutual fund trades. And in a harried, fast-changing investment world glutted with information, finding a broker you're comfortable with requires a bit of homework.

The stock market's climb has drawn throngs of new investors looking to get into the mix. At the same time, advances in technology and the emergence of the World Wide Web have transformed the way brokers do business, giving investors a swarm of options they never had before.

"Arming yourself with knowledge is about the best thing you can do," said Nancy Condon of the National Association of Securities Dealers (NASD).

Here are some of the key factors to consider in selecting a broker:

In years past, brokers fell into two main categories: full-service brokers, who execute a client's stock trades while also providing advice and research, and discount brokers, who generally only conduct trades. Today, it's more splintered.

The Internet has triggered an array of deep-discount online brokerages that will execute trades at a fraction of the commission charged by full-service and discount brokers. And the onslaught of financial news and data in recent years has prompted brokers to diversify the levels of assistance they offer.

Bob Magnuson, senior vice president for D.A. Davidson & Co. in Seattle, said the full-service approach provides individualized attention that clients can't find anywhere else. Customers' investments are personally managed by an account executive, and clients have access to recommendations and analysis prepared by the firm's research staff.

Magnuson said the market's overall rise in recent years has made it harder to distinguish between sound, well-managed investments and those merely riding the coattails of the bull run. Full-service brokers, he said, help investors make that distinction.

Of course, the full-service approach costs more. Such brokers demand the highest commissions, often charging hundreds of dollars for high-volume trades. And full-service accounts can require substantial levels of investment.

Those who already have a specific idea of investments they'd like to make, or who perhaps have less money to spend on a broker, might consider the discount route. Discount brokers don't offer as much advice or service to clients, but they charge lower commissions.

While discount brokers focus mainly on conducting trades, many offer limited services, such as stock history charts, reports from national research firms and free delivery of stock certificates. Some discount brokers also offer limited advice, although it's not as specific or individually tailored as the advice given by full-service brokers.

Well-prepared investors who prefer the hands-on approach can post their own trades on the Internet. Deep-discount Web sites have proliferated in recent years, with some charging commissions below $10 a trade.

Online customers log on to the broker's Web site and post their trades, which are registered with the appropriate stock exchange by the broker. These brokers often charge flat commissions that apply to any number of shares at any price.

There's plenty to be wary of in selecting who will handle your investments. An Internet site (http://www.investor.nasd.com) operated by NASD lists red flags.

Make sure your broker is a member of the Securities Investor Protection Corp., which protects investors if a brokerage firm becomes insolvent. And the disciplinary history of any broker can be investigated by calling an NASD-run hot line at 800-289-9999.

While stocks receive much of the fanfare, today's investing world goes well beyond buying and selling shares. Investors plunked $24 billion into mutual funds alone in March, and more brokers are encouraging clients to diversify their portfolios with investments such as bonds, certificates of deposit and international stocks.

The changing investment climate has prompted full-service broker Piper Jaffray to shift away from the traditional payment structures based solely on commissions, Vice President Maria Verven said.

A more common structure these days at Piper Jaffray is the fee-based approach, in which clients pay a quarterly fee based on the market value of their account. Rates vary -- they're negotiated between investors and account executives -- but one example might be a fee equal to 1.25 percent of assets. For a $50,000 portfolio, that fee would be $625.

The commission structure has long been criticized as susceptible to churning -- excessive trading to generate commissions, regardless of the outcome of the transaction.

Fee-based plans, Verven said, eliminate that concern by giving the investor and account executive a shared incentive to strengthen the investor's portfolio.

There are no comments - be the first to comment