Brokers.
This article, Is Your Broker Right for You? in the August 2003 issue of Smart Money Magazine prompted the following thoughts and comments:
From a small, independent investor's view point the stock broker business has significantly changed in the past couple years. Last January (2003) when I placed some buy and sell orders with my Prudential broker in New York, she informed me that those were the last individual trades she would be making for me. It would be necessary for me to change my account to a managed account----and they would make all the decisions and charge a flat management fee each quarter. In other words, they were going strictly managed accounts. Since that was not my style, it meant moving my account back home.
I decided to use my account move as motivation to interview area brokers to find out what was happening locally in the industry. Much to my surprise things had significantly changed! Brokers, at least the ones I talked to, were uninterested in taking a customer with less than $100,000. In fact they wouldn't. In addition, the accounts would be fee managed accounts. So, the Prudential office in New York was not unusual.
I was really floored, then realized this was each brokerage firm's reaction to the individual investors' migration to inexpensive, online brokerage accounts. (I have two such accounts.) I had more than one broker tell me that anyone with less than $30,000 had no business being in individual stocks. Well, I beg your pardon----I started a brokerage account with $500 and bought only individual stocks with commissions at $45 in and $45 out. That account has grown to now qualify for investing in individual stocks---according to one broker's point of view.
Here are some interesting statistics from the article, Is your Broker Right for You? in the August 2003 issue of Smart Money Magazine. It is an excellent article about brokers that merits reading in its entirety.
• retail trading volume is off 66% from its peak in 2000
• most full service firms want clients with more than $250,000 and preferably $500,000
(I guess I was lucky to talk to those willing to take an account with only $100,000.)
• Schwab CEO David Pottruck says that most of the time, accounts under $100,000 are not profitable for the firm.
• Merrill Lynch barely breaks even on accounts below $250,000
• Schwab spends $400 a year per account
• Ameritrade spends $150
• A recent poll from Weiss Ratings, a financial-services industry watchdog, showed that 83 percent of investors are unlikely to rely on their broker's investment advice.
The article rates thirteen basic discount brokers. It also includes a quiz that will help you choose the type of broker that best meets your needs.
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