Choosing a Stockbroker in Uncertain Times

Edition: December 2001 - Vol 9 Number 12
Article#: 1113
Author: Richard Yercheck

In a bull market, most investors love their brokers. For the most part, investments are going up, and all is right with the world. Investment performance takes a back seat to intangibles- things like ''personality'' or ''service.''


But when a bear market rolls in like a blast of winter air, opinions change sharply. All of a sudden, performance means everything.


Successfully selecting a broker isn't an exact science. Rather, it's a combination of demeanor, responsiveness, and results- and the right mix is determined by you.


So, how do you decide on the right broker? While there's no precise formula, there are issues you can examine to determine your level of comfort. By honestly answering some basic questions, you can come to a better understanding of how satisfied you are with your brokerage relationship.


Integrity
The first issue you should consider is whether you trust your broker. If you don't, the decision's easy- get a new one. Without trust, nothing else matters.


If you don't trust your broker, you can't be sure you're getting objective advice and counsel. Do you believe what your broker tells you? Or do you feel that crucial information is being withheld, the potential of investment recommendations is being overstated, or you're being deceived? If so, move on. You'll be better off.


Does your broker seem to have your best interests at heart? Of course, brokers can't afford to ignore their own interests. However, you should feel secure that you're working with someone genuinely dedicated to your success.


Here's another test: has your broker ever tried to talk you out of a trade instead of taking the easy commission?


How your broker handles bad news is important, too. For example, when an investment loses money, does your broker call you about it? You need a guide who will give you an honest assessment of the situation. All brokers make mistakes. Good brokers own up to them.


Chemistry
Another absolute necessity: you have to develop rapport. Otherwise, the relationship is bound to be short. Why deal with someone you don't like? Do you hesitate to call when you need advice?


If you're comfortable, confident, and at ease- if you enjoy doing business with your broker, you're on the right track. You don't even have to know what you like about your broker, only that you do.


Is your broker happy to hear from you when you do call? Do you feel a ''we're in this together'' camaraderie? If so, congratulations.


Responsiveness
When you ask your broker for material or information, do you get it? Are your calls returned?


When you have money to invest does your broker call with ideas and suggestions? When there is important news about your investments, do you hear about it from your broker before you read it in the paper?


Is your broker there when you call? Does your broker call you to advise that you should sell? When trades are executed, to tell you the price? Does your broker take personal responsibility for seeing that your questions are answered and your problems solved?


Each year, does your broker review your investments with you? Do you receive research when it's appropriate?


Service problems have led to more lost accounts than performance problems ever will. All of these areas and more add up to good service. You deserve it- you should expect it.


Understanding
Does your broker listen? Does he or she take the time to determine your needs?


Does your broker ask good questions? Listen to your needs and respond accordingly? Take the time to find out what your objectives are, and your tolerance of risk?


A good broker won't make a recommendation without first determining your objectives. Since most clients aren't adept at expressing needs, it takes skill to get information. You need a broker with this attentiveness to be well served.


Knowledge and Results
Most important, you should have a broker with demonstrated knowledge, familiarity with various types of investments, and a track record of performance.


If your main interest is stocks, you certainly want a broker who watches the day-to-day movements of the market. But you also want someone who can give you advice on the way the market is going long-term. Similarly, if you're interested in bonds, you want a broker who deals in them regularly and can give an opinion on the bond market's direction.


When you pay a full-service broker a fee or commission, you expect expert advice. If you find that you have to do most of the research yourself, and your broker is having a difficult time answering your questions about a specific area of investing, perhaps you should look elsewhere.


These days, with all the uncertainty in the marketplace, it pays to be aware of the true, dollars-and-cents value of the advice you receive from your broker: investment performance.


Examine how the investments your broker has recommended have done overall. How much money has your broker made for you? Would you have done better with your money in the bank? If so, get another broker.


There's an even more revealing question. Are you achieving your investment objectives? Be fair. If your stated objective is to earn 8 percent in tax-free income, and you have, then you should be pleased--even if you could have made more money by assuming greater risk. If the market is down and your stocks are down with it, it's not necessarily your broker's fault. But if your stocks are down consistently, you may need new advice. All of these things, taken together, should help you select a broker in times of uncertainty. In fact, they can help you anytime. There's no magic to it just common sense.



About The Author: Richard Yercheck is a Financial Consultant with IJL Wachovia in Charlotte, NC. For more information, please call Richard at 800-929-0724. IJL Wachovia is a division of Wachovia Securities, Inc., Member NYSE and SIPC, and a separate non-bank affiliate of Wachovia Corporation. 2001 Wachovia Corporation.