Stock brokers — can’t live with them, can’t kill them. That’s the phrase, right? Stock brokers are the fabulous people who buy and sell stocks and securities for you and other victims clients. That’s awfully nice of them, isn’t it? Well, believe it or not, this work is not done out of the goodness of their hearts. They receive a fee or commission for helping you out. Oh well, everyone needs to earn a living.
I’m sure there are some awesome stock brokers out there, but you may want to be wary of these sharks professionals. Let’s discuss what they aren’t telling you.
1. They are not necessarily investing experts and they are certainly not psychics. Stock brokers, much like used car dealers, are often better at being charming and persuasive than they are at actually knowing what they are talking about. The required skill set for these professionals includes being persuasive, aggressive, and slick.
“But, but he’s a Certified Annuity Advisor! It says so on that certificate on his wall!” Yeah, that takes approximately two days of self study. Calm yourself down, it’s not that impressive.
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Also, be wary of anyone who tells you they can predict the ups and downs of the market. Provided they don’t have Warren Buffett’s weird abilities, they are full of it. Even worse, when they lose your money, they will not be fired or penalized. After all, you chose to allow them to advise you on an unpredictable beast, the stock market.
2. Your interests may not be at the forefront of their minds. Surprise, surprise — people are more likely to take care of their own financial interests than yours. Particularly anyone who works on commission — stock brokers, car dealers, debt collectors, sales associates, etc. It’s not pretty but that’s life, you would probably do the same thing in their position. If you wouldn’t, you are likely not great with sales.
Let’s start with the preferred mutual fund list. Fund families that bribe stock brokers get pushed on investors before other funds. It doesn’t mean they are the best funds, it means the broker gets the best kick back from them. Could they be great funds? Sure! But they might not be.
Other than that, any stocks or funds that will provide a higher commission for the stock brokers are likely to be suggested to you, sometimes in an aggressive way. These funds are the most profitable so they may be pushed on you quite a bit.
On the plus side, you can ask your broker what they are making on the investment and where the money is coming from. Keep them honest, someone has to.
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3. They may not be super interested in answering your calls. Like that new cute guy you are stalking dating, stock brokers are notorious for not answering your phone calls after you’ve signed an agreement. Why would they want to? You’ll probably just ask inane questions, like “Why is my money half of what it was yesterday?” and “When did I agree to a 30% fee?” They are much better off ignoring you once the agreement is in place.
4. Commission-free is not really a thing. Often times, the stock or bond you are purchasing through your broker is coming from the brokerage house inventory. Shockingly, said brokerage house is trying to get the best price for itself.
What does this mean? Well commission-free trades don’t really exist. Because brokerage houses are trying to make good money, your stock broker is likely making a lot of money on those “commission-free” trades.
It’s a good idea to check the market price of the stock or bond you are purchasing to make sure it isn’t too far off from what your broker is charging you. Don’t get ripped off because you didn’t do your research.
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5. Got cash? They are making money off of it but you aren’t. Besides commissions and annual fees, brokers are making even more money off of you! If you have cash in your account, they are lending it out at high interest rates while giving you pennies for it. Keep this in mind when working with your broker.
6. They can get in trouble and get right back into the game. Some brokers do some pretty shady things and then go right back to being brokers after paying a fee or sitting out for a brief suspension. Yikes, right?
So how do you know if you are dealing with a Shady McShaderson? You can check out your broker’s work history and disciplinary record with FINRA. A broker that changes employers regularly should raise a red flag. A big red flag that says “Danger! Stay away! I’m super shady!” Heed this warning: do not deal with shifty stock brokers. They will be just as shifty with your investments.
7. You can do most or all of this stuff by yourself. Just like preparing income tax returns, many people assume that doing their own investing research is too risky. I’ve got news for you, those with less complicated financial situations (READ: people without businesses or really crazy investments) can both prepare their own tax returns and do their own investing. It’s really not that hard.
To build wealth steadily, you really just need a couple hours of time to research low cost funds and reevaluate said funds annually. Purchase a low cost index based portfolio with a reputable mutual fund company or assemble your portfolio with low cost ETFs. It’s not sexy, but it’s not difficult and it works.
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Don’t undervalue yourself or your knowhow. Investing seems intimidating and scary, but you can do this with just a little time and research. Even better, you won’t have to pay someone slimy that doesn’t have your best intentions in mind. If you don’t care about your money, who will? Handle your cash (and stocks and bonds and index funds).
Do you use a stock broker? Did you enjoy the experience or do you prefer to do your investing on your own?