Is your Stockbroker a Crook? - By: Jim Pretin
If you are not too familiar with the stock market or investments in general, you could probably use some help in determining whether your broker is managing your money ethically and responsibly. A good broker not only is concerned with making themselves money but is also motivated to help your portfolio grow. Use the information presented in this article to help you determine whether your broker is a sage financial professional or a crook.
A full-service broker, much like a full-service gas station, advises you on which stocks to buy. Full service brokers are financial advisors, they tell you what to do. However, full-service brokers do not always provide expert advice. Most of the advice they provide is based on research done by analysts who work with them.
A full-service broker offers a wider array of investment vehicles for you to put your money in, such as stocks, bonds, derivatives, annuities, and some also sell life insurance. A discount broker, on the other hand, does not have access to all these investment vehicles. A discount broker makes money by opening up a lot of accounts and having a lot of customers, but a full-service broker makes money by placing a lot of trades within your account, because they receive a commission on each trade.
This is where you need to be careful. Full-service brokers make money every single time you place a trade. So, they have an incentive to persuade you to place a lot of trades, because that is where they make their money. There are unscrupulous full-service brokers out there who do provide sagacious investment advice, but who are so active with your portfolio that their commissions start to eat away at your earnings. Neophyte investors have unknowingly hired these sorts of brokers, and when they get their annual statement they are shocked to find that they made a lot less than what they thought, and in some cases actually got a negative return on their investments.
Also, a good broker maintains constant contact with his or her clients. They should not be calling you every minute, but they should call you once in awhile to let you know about what they are doing with your portfolio. In addition, your stockbroker should not be leaving work every day at the exact moment the market closes. A smart financial professional has to evaluate research reports and economic data after the market closes each day to decide what needs to be bought or sold within your portfolio.
Most importantly, you need to be leery of your broker trying to push you into certain speculative investments. Sometimes, brokerage houses themselves hold huge positions in the stocks of certain companies, and they encourage, or even compel, the brokers that work there to push that stock on their clients in order to drive up the price of the stock so they can sell it at a profit. This can be a good thing if the stock they are pushing offers a potentially lucrative return, but this is often not the case.
I hope this information will help you determine whether you have a good broker. Make sure your broker works for a reputable brokerage house and not some fly-by-night cold calling establishment. Make sure that your broker understands that you are aware of the fact that they make money every time a trade is executed. Independently research some of the stocks your broker has recommended to you to make sure that they are not pushing a terrible stock for their own personal gain. Use all of the recommendations outlined in this article when evaluating your financial professional and you should do fine.
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Jim Pretin is the owner of http://www.forms4free.com, a service that helps programmers make HTML forms.