Quote:
Originally Posted by lilamx
Why?
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1) Because with regard to stocks, you are dealing with someone whose interests are not aligned with yours. His (the majority are men, I think) best interests lie in making trades. Your best interests may not lie with making those trades. That alone should bother you very much. In fact, it should be the deal-breaker.
2) Because with regard to mutual funds, you will be put into load funds. The 'load' is typically a 5.75% 'sales charge'. Your $1000 just became $942.50 and you haven't made a dime yet, with absolutely no reason to believe that this fund is superior to no-load funds. The load exists only for the broker to get paid, and it's by percentage, so if you invest $100000 you just barfed up $5750 for a transaction that's essentially the same from a mechanical standpoint.
3) Because many brokers are under significant pressure to put clients into stocks the brokerage is trying to get rid of.
4) Because your broker is unlikely to outperform the markets. A lot of them know far less than you realize.
5) Because the odds are excellent that you would make far more money in the long haul simply buying an index ETF that tracks an index representing the markets in which you want to be invested. The ETF will almost certainly not beat the market return, but it will almost certainly come within a very small fraction of the market return,
with no action or knowledge necessary on your part. Index ETFs typically have extremely low expense ratios (far, far lower than the mutual funds your full-commission broker is likely to put you into, by the way), which means you get to keep maximum money. Anyone but a truly el cheapo broker will let you automatically reinvest its dividends.
6) Because he gets paid whether you make or lose money. So do mutual fund managers; thus the preference for the lowest possible expense ratio, so that win or lose they get the least of your money. "But," you may ask, "surely he will want to do well to keep me as a client." Not unless you have a hell of a lot of money. He gets paid, win or lose. If he loses you money, is he going to refund what you paid him? Ask him that; see what he says.
7) Because the goal of all this is to make money. Not to get a false sense of security because you can say to yourself, "I have a stockbroker."
To make money. Nothing else matters and nothing can get in the way. You should do what will make you the most money consistent with your risk tolerance and investment horizon. An index ETF is about the most unsexy, unexciting way to do that. It's also the one for the people: those who don't know C from BAC and don't want to.
I cannot think of a single category or class of person for whom a full-service broker is suitable, for the same reason I cannot think of a single reason I would want to use an electric typewriter if a word processor were available. The rise of the discount broker has destroyed the raison d'etre of the full-service broker. If you can find one who will give you back his commissions if he loses you money, hire him. Otherwise, no.
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