Tuesday, November 21, 2006
No brokers
No brokers
The markets are cut throat. What may seem like a helping hand can also be a one way ticket to a non-existent portfolio. I have very little experience with stockbrokers and that is just enough for me.
As a stockbroker, your job description is literally “pawn off the stocks the firm wants to dump.” First and foremost the stockbroker is employed by the brokerage firm and will seek to protect the interests of his or her employer rather than that of the everyday investor with holdings at the branch. The job of a stockbroker is to sell what the brokerage house wants to sell rather than the best investment for the client.
Stockbrokers might as well be used car salesmen. Look at it this way, if there are shares that you can purchase, there are other people who no longer wish to be involved in the business. A sale happens because one party, for one reason or another, is no longer interested in possessing a product and another individual desires the product.
Stockbrokers are necessary for the majority of investors to place trades on the market. Unless you are the owner of a seat on the exchange, you will need to use a stockbroker to buy or sell a security. Some funds are only available through the use of a stockbroker (who receives a commission on the sale). The job of a stockbroker, essentially the middleman, will always exist because most people do not have direct access to the markets.
Technology is slowly taking over the investing scene. Through various online brokerage firms, and investor can place trades for just a few dollars up to ten thousand shares. These low fees make it available for an investor with any size portfolio to make an investment. Stockbrokers need not be an individual to be considered a stockbroker. Etrade and Charles Schwab are both considered stockbrokers however they are corporations rather than individuals who partake in the business of brokering stocks.
It may be necessary for you to call in your trades to your broker. While it is necessary for you to use the broker to invest, you do not have to heed every investment decision he makes for you. The casual investor will usually accept the word of a broker to be accurate and in the best interest of himself. The brokers do have extensive knowledge of the markets, right?
WRONG! To obtain a license to become a stockbroker you need to know the laws. Especially in the United States, the examination for a license requires that stockbrokers know all the ins and outs of laws reguarding the financial markets but do not test for financial literacy. To be quite frank, a broker does not need to know anything about how to pick good investments.
I don’t know about you, but I sure do no want my investment dollars in the hands of someone who has not yet proven to be profitable in the markets. This is why for the casual investor I would choose mutual funds for investments.
The managers of hedge funds and mutual funds are paid by incentive. A manager who outperforms will make more money than a manager who loses. There is a reason for a manager to perform well as it will help him personally.
A stockbroker is paid by the amount of stock he or she is able to solicit to his or her clients. The fees are usually flat fees but can also be a percentage of the overall investment. If the trading house needs to sell unwanted shares of a company, the firm can offer extra payments to brokers who move the stock.
In simple terms:
Brokers make money by selling securities to investors
Managers make money by returning the best possible returns to the investors.
Don’t listen to your broker and make your own analysis of every investment before you decide to invest. Read the fine print and do not take your broker’s word as perfection. You will save lots of money and probably learn a thing or two along the way.