The Corner for July 11, 2014

Over last few decades, many investors have moved away from the traditional full service stockbrokerage firms to discount and internet brokerage firms. For some investors, especially during the heady days of the late 1990s and the middle of the first decade of this century they have abandoned all brokerage advice and took on the business of investing by becoming “day traders.”

With the carnage that occurred after the dot-com bust, especially in the NASDAQ traded stocks, many investors who once “confused brains with a bull market” were no longer the “do-it-yourself” stock trader. In fact, many investors once again sought professional advice.

How does one go about choosing professional investment advice?

If you are to doing your buying and selling of investments through a broker, it is obviously of vital importance to you to choose one who can service your account properly. But don’t create a tough and unnecessary problem for yourself by expecting the broker you choose to be right all the time. For he or she won’t be — and when they are wrong, you may be tempted to follow the tips of amateurs who intrigue you by claiming they are making fortunes. This way often leads to disaster and during the last several years of the great bull market of the 1990s a dismally large percentage of Americans took this course to no avail. Even the most astute professional will not be right all of the time. In fact, in some periods, their advice will range from indifferent to downright bad.

Choosing and recommending investments is not a science. It is an art. Your broker or financial advisor should be right enough of the time to help guide you toward your investment objectives and help you enhance your assets. You should be able to trust your broker’s experience, research and judgment and you should feel comfortable with him or her. And basically your nest egg is your responsibility.

Here are four key rules to follow in selecting a broker.

1. I have always favored brokerage firms that are members of the New York Stock Exchange. Of course, there are non-member firms which also rank at the top but if you are a beginner, then you probably have no sound information on these. The NYSE has nearly 3,000 listed stocks.

Moreover, a member of the NYSE must meet the highest standards established to date, including net capital requirements and compliance with NYSE rules and regulations.

2. Shop around as you would shop around for any service as important as this. I often say, that you would probably not want the cheapest heart surgeon operating on your heart and you probably don’t want the cheapest broker operating on your wallet.

3. Ask each firm you visit, for its recommendations of investment services for a person in your financial position and for its research reports on the companies suggested.

4. Select your broker on the basis of your comparisons of the firms and their advice to you.  Then give the broker or financial advisor all the pertinent facts about your financial circumstances and goals. The more your advisor knows about your situation, the better he or she can advise you.

5. Ask how he or she gets paid and get to know the fee and commission structure.

6. Finally, ask how long they have been in the business? Bull (up) market brokers that have never been tested or tried during a bear (down) market often don’t survive during bad markets. If you are going to seek out an advisor, better to have one that will be around for years to come.

Quote of the Week: “Nostalgia is a seductive liar.” — George Ball (former head of EF Hutton)

Bart Ward is the chief executive officer of Ward & Co. Ltd., an Anoka-based registered investment adviser – specializing in the management of stock and bond portfolios in companies which are listed on the NYSE.

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