Finding the Right Broker(s)
Picking a Financial Representative is Like Picking a Stock
Many years ago the New York Stock Exchange did a one question survey of investors: "Why do you deal the broker you do?" The overwhelming answer was "I know him/her, I like him/her and I trust him/her." Little has changed since then in that regard. Perhaps you are solicited by them or you find them, picking the right fit is very much like picking the right investments for you.
How Many?
There is no rule that says you only get to have one broker or firm. Many investors do in fact have multiple brokers for the same reason you have more than one investment. It pays to diversify. Brokers are like anyone else; each brings their own interests, talents and level of expertise.
How many brokers you might have is also a function of your level of affluence. To have a small amount of money at many different firms is as counter productive as having too much at only one. Do what is comfortable for you but be realistic.
Not Just a Question of Commissions
Just as you do, brokers get to make a living too. In this age of discount brokerage firms and what appears to be a commodity business can be deceiving. If you truly have the capability to do your own research and know how to trade then by all means do what is most productive and cost effective for you.
If you do not have that capability, do not be "penny-wise and pound-foolish." Do you go to a discount doctor or a discount dentist or a discount lawyer? Probably not. Why? Because you know you value their advice and counsel. Brokers and the firms they work for are no different. They have resources and expertise that is well beyond yours.
Don’t spread you business too thin as you will not mean anything to a broker but don’t give away the store either.
Recognizing a Professional
It is indeed unfortunate, but the investment community has its fair share of charlatans like any other profession. If you get solicited with a "hot stock" – don’t walk, RUN! The first question any broker should ask is what the purpose of your investments? Capital appreciation, dividend growth, safety of principal and income are all legitimate answers.
A real professional will try to assess your level of risk tolerance as well as endeavoring to uncover your personality type. Brokers tend to reflect their clients' personality. Don’t be afraid to share your level of risk tolerance. It will only help your broker provide the best investments for you. Once again, be realistic. Don’t tell your broker something that isn’t true; they hate unpleasant surprises as much as you.
A good broker will be honest with you and will be a "devil’s advocate" for your benefit and will tell you what you can and cannot do, what is in your best interest and what is not. Akin to other professions, there are generalists and specialists; do what is right for you. Your broker(s) should be pro-active and responsive. The last thing you need is an order taker.
Do not take anything for granted, like discretionary accounts. For example, you have to give your broker authority to place orders for you in writing. Don’t be tricked into a margin account when your risk tolerance is very low. If you have any questions at all – ask.
The Firm
The firm your broker works at can be as important as the person(s) you are dealing with. Does the firm allow the broker to speak their mind or must the broker tow the "party-line?" The level and expertise of the both the macro and the micro levels of research are very important to you.
On the other side of the coin, most countries have the ability to see how many investor complaints a firm or an individual has. Don’t be afraid to do some research on your own.
Caveat Emptor.
No Bull
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