How to select the right stock broker for you

Published: Monday, January 1, 2007 at 6:01 a.m.
Last Modified: Sunday, December 31, 2006 at 12:49 a.m.
Q: My wife and I recently received $277,000, net after taxes, from the sale of some property we bought years ago. We have about $237,000 in six mutual funds and three certificates of deposit and, at age 59, it's time we began to get serious about the stock market and develop an investment plan with a broker. We also have $141,000 in 401(k)s and $86,000 in our Individual Retirement Accounts.
But my question is, how do my wife and I find a stockbroker to help us? We don't want to just walk in to Merrill Lynch and say: "Here we are." Can you please recommend a broker for us or tell us how we can find a broker by ourselves?
F.R., Durham, N.C.
A: Choosing the right broker is as easy as selecting the perfect doctor. The firm employing the broker is not important. With the exception of the obvious "schlock" outfits, a Merrill broker is no better than a guy from Hilliard Lyons. And a Morgan Stanley man is as good as a fellow from Compton Cabot, Lodge and Schwartz. They all sell the same "stuff" at the same price.
You must be mindful that stockbrokers, like sharks, must remain in motion to stay alive. Stockbrokers are salesmen who make a living by selling you things. If they fail to sell you things, they may have trouble making payments on their mortgages, cars, boats, credit cards or to their bookies. Stockbrokers have debts like ordinary people but they work at an extraordinary job where their employer requires them to meet predetermined commission goals. And if a broker fails to meet those goals, his boss may take him to the company woodshed for a private discussion.
So be especially mindful that the success of most brokers is measured by the commission dollars he earns for his firm each month - sadly - not how well your account performs.
Finally, you must know that most brokerages have "preferred" products for their salesmen to sell. These are usually proprietary investments - mutual funds, unit trusts, insurance products, new issues, etc. - and your broker is paid a bonus for selling them.
So, as you can see, finding a broker who can guide you through the financial eddies, shoals and currents is a tricky task. You take a friend's advice - "Call my broker. He's terrific." - but that advice seldom works. It may be a good way to lose a friend, your money or both. Stockbrokers, like shoes, come in various shapes and sizes. That shoe may fit your buddy but you must find a fit for you. So here's the plan.
1. Select three brokerage firms from the yellow pages.
2. Call the manager of each firm and request a five-minute appointment for you and your wife.
3. Tell him that you need his help in recommending a broker.
4. Prepare a personal balance sheet and an income statement. No more than one page each. Prepare a simple personal resume (one-page), too.
5. Meet with the manager. Remember this is an important meeting for you. You're not an airline passenger so don't dress like a refugee. Wear business attire, and your spouse should dress accordingly.
6. When meeting with the manager, he MUST ask you about your investment goals. Let the manager ask the questions and do the talking. At some point (you will know when), ask for the name of a broker. If the manager doesn't ask about your investment goals, take the broker's name, say "thank you," leave the office and never return. If he asks about your investment goals, take the broker's name and request a meeting with the broker right now but only for five minutes.
7. When you meet the broker (in his office only - remember you can observe a lot by watching) tell him that you and your wife have a personal commitment and that you have about five minutes to say hello. In five minutes or sooner, get up to leave and tell the broker you will call him for an appointment.
8. Return home together. Get out a legal pad. Title a page "Office Manager" and draw a line down the middle of it. Label the left side of the page "Positive," and the right side "Negative." Then using verbs and adjectives describe your impressions of the office manager, such as "smiles a lot," "doesn't give eye contact," "friendly," etc.
Do the same for "Office Ambience," listing pluses and minuses (clean, bright, smelly, etc.), and a third page for "Broker." Be mindful that these are first impressions, but you'll have fun doing it together. Put the three pages in a folder marked with the name of the brokerage firm and tuck it away for quick access.
9. If you agree that your responses are favorable, send the manager and the broker a short note thanking them for their time and that you will call within a week to set up an appointment. No matter how favorable your first impression, never kiss on the first date. This investigation and search can be amazingly productive if you make a game of it. Within a week, you should be able to visit with three brokerages and have three "first-impression files."
10. If the broker to whom you are introduced is younger than 50 and has been in the business less than 15 years, eliminate him from your list and return to the yellow pages and find another brokerage firm manager to interview.
11. Rank the first-impression files with the most favorable impression on top. Call them in reverse order and schedule appointments.
. . .
When meeting your prospective broker, dress as if you are attending a job interview. However, you will interview the broker who wants the job of managing your money.
Here are some important caveats. Brokers in their 20s, 30s and 40s don't have the financial or emotional maturity to provide the investment advice that you need.
It's folly to expect a 30- or 40-year-old to identify with your goals, aspirations, insecurities and feelings. Merrill Lynch has a superb training program, but I'd not be comfortable accepting financial advice from a newly minted 20- or 40-year-old or a lad with eight to 10 years' experience. If you needed cataract surgery, would you select an eye guy who has done 100 operations, or a surgeon who has completed 1,000 procedures? Success breeds success.
You want a broker who owns a sizable personal investment portfolio and whose goals are similar to yours. You want a broker who "walks the walk" because there's wisdom in his practiced footsteps. Investment wisdom is the result of lots of experiences - and experience is the result of lots of mistakes. Select a broker who is familiar with the road so he won't have to practice on your dime. Select a broker close to your age so you grow old together.
Now, let's meet the broker.
1. After greeting the broker, sit back, relax, then give him your balance sheet, income statement and resume. Remember this fellow is a professional and will often ask questions to which he knows the answer. So when he asks, "What are your investment goals?" (and he must), you should respond with, "We're not sure. What do you think they should be?" Bring a legal pad. Take notes. When the broker asks you a question about investing, turn his question into another question. Confess your ignorance (this should be easy, because you are) and say, "We'd really like your advice." You know enough to answer questions about your children, your jobs, your goals and hobbies, so answer them freely but you don't know enough to answer questions about investing.
2. You must ask the broker questions about his family, hobbies, education and investment experience, and ask him tell you about his personal portfolio. Don't be shy. You have the right to know as much about him as he does about you. You are interviewing him to manage your money and future.
3. Listen hard. Take notes. When the broker says he likes bonds or that drug stocks will do well or he likes prefers convertible issues, etc., always ask why. This is a superb question and you must listen to his answers. Be mindful that you can hear a lot by listening. After about 15 to 20 minutes, the interview will begin to flow smoothly and you should feel confident and comfortable. So it's time to ...
4. Ask the broker to give you a general idea how he might compose your account. Listen carefully and remember to ask why.
5. Take notes. Ask him for a resume. Every serious professional will have a resume for potential clients. Ask him to sketch an investment plan for you. During the interview, you must remember to say, "I don't understand," or ask, "Could you explain that?" Be ever, ever mindful that this meeting is an extremely important educational and learning process for both of you.
While you are interviewing the broker, be aware and perceptive. Observe the broker's office ambience.
  • If his office wall is adorned with pictures of famous people, he has a serious ego problem.
  • If his office wall is covered with sales recognitions awards, leave quickly. He'll try to sell you the stuff that's highlighted on his wall.
  • If his desk is messy, then his mind and thinking processes are messy, too. Know that a broker's office decor is a silent extension of his personality. Note them on your pad.
  • Does he give you frequent eye contact? Failure to do so indicates a lack of self-confidence.
  • If he brags about his clients and people he knows, he may not be trustworthy.
  • Interrupting the interview to take phone calls shows a lack of respect.
  • If he dresses casually - shoes without socks, a sweater, no tie or an open shirt - this suggests he may not take his job seriously.
  • If he wears gold chains, multiple rings, a showy gold watch or gold bracelets, he has an image problem.
  • If he wears obviously expensive and tailored clothes and strong cologne, he's narcissistic.
  • If he steps on your words, constantly plays with a pencil, twists paperclips, frequently adjusts his tie, smooths his hair, pulls on his cuffs, then he can't focus well.
  • If he wears sunglasses or a beard, he's hiding from you.
  • If he tries to sell a product during the interview or aggressively encourages you to open an account, drop him like a hot rock.
    When you complete the interview, return home with your notes and legal pad. Take out your first-impression file and start listing the pluses and minuses. Make a game of it. Your second interview will be easier than the first, the third will be a snap and soon everything will begin to fall into place. In the process you will have been brilliantly educated, will have formulated an investment plan and have a darn good idea what's required to meet your goals.
    Do it this way and you'll find that choosing the right broker will be a no-brainer - and lots of fun, too.
    Please address your questions to Malcolm Berko, P.O. Box 1416, Boca Raton, FL 33429 or e-mail
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