business

In Brokers We Do/Don't Trust

You hit the nail on the head and have exposed a serious issue with "Can you trust your broker?" (Cover Story, Feb. 20). Although I never begrudged the status and quick financial rewards I experienced as a young broker, I hated to lose money for a client. It always bothered me when older, veteran brokers got pats on the back from upper management--while it was evident many of them churned and burned their clients in order to qualify for free trips and prizes. It would not at all be unusual to find unethical brokers holding the titles of managing director, partner, first vice-president, or chairman at investment firms all over the country. Hopefully, one day regulators, firms, and clients will hold brokers accountable for client performance instead of allowing commissions to be the only benchmark of success.

Doug Davis

Executive Sales Trainer

Davis & Davis

Beaverton, Ore.

As president of an 80-year-old local brokerage, I commend your writers for a factual and thought-provoking article. Regardless of size, all brokers' sales practices, ethics, and customer-service commitments start at the top and work down through the hierarchy. Therefore, it is not that today's commission structure is inherently bad. It is rather that brokerage managers have failed to instill proper values in the sales force.

At smaller firms such as mine, we prosper by taking care of our customers. It is the best way to survive in a world of aggressive competition. My experience tells me that other small firms, like ours, prosper only when clients prosper. In such firms, the answer is: "Yes, you can trust your broker."

Wayne F. Holly

President

Sage, Rutty & Co.

Rochester, N.Y.

Your article was on target. What was missing was more information on viable alternatives for investors. Fee-only financial planners should have been in the spotlight. We provide objective financial advice, and our money-management decisions are based solely on the client's needs and financial goals.

Holly D. Nicholson

Financial Planning Services Inc.

Raleigh, N.C.

The public should be thankful to publications like yours for exposing the unscrupulous brokers in our industry, but that is the last decade's story. Investors are far more savvy and better informed in today's market. They aren't easily swayed by a fast-talking, slick stockbroker. And if you don't believe it, try making some of those "cold calls" yourself.

Regarding better pay for more business: Isn't that what capitalism is all about? If I were a client, I would rather do business with a successful, prosperous, well-compensated broker than a struggling, desperate one who is trying to make his next mortgage payment.

Gary Meyers

Senior Portfolio Manager

Robinson-Humphrey/Smith Barney

Atlanta

Rhum12@aol.com

The answer to the question posed by your story is a definite yes--contrary to the tone of the article. Successful investment professionals know that careers are based on relationships, which are built on investment return, quality of service, and attention to the client's needs. Of course, there are brokers who abuse their position of trust. But I assure you that the reality of the industry bears little resemblance to your article. I see far more brokers who are "shooting straight" than the selected negative examples that you chose to focus upon.

Dale T. Miller

Bellevue, Wash.

The answer is a resounding no. At E.F. Hutton, I witnessed first-hand all the practices noted in the article. Also, I saw how brokers acted: Greedy. Self-centered. Sleazy. I am glad I am out of that business. Every day when I went home, I felt I had to scrape off the slime and scum.

Brian Napoli

Medina, N.Y.

You present a useful and balanced description of an industry held captive by transaction-based compensation. However, as a former stockbroker and participant in customer-broker arbitration disputes, I am convinced that restoration of public trust requires more than the moderation of commission incentives. Reform of the conflict-resolution process is necessary as well.

For investors, arbitration is expensive, time-consuming, and very risky. A single defeat can be devastating when it is the only chance you get. But for the industry, arbitration is just part of damage control, and it usually works to the industry's favor. If it's the investor's word against the broker's, the broker usually wins. Rich investors don't fare well because arbitrators typically equate wealth with sophistication.

A good investor award might pay for out-of-pocket losses but not include lawyers' fees or other costs. A bad award could not only "zero" the claimant but also require payment of costs. The likelihood of punitive damages approaches zero. The industry has little incentive to settle, and risk-averse customers usually settle for much less than their economic losses.

The panels should involve random selection of members and the elimination of "professional" arbitrators, who tend to be compromisers. Decisions should be published and should include factual findings and opinions and conclusions. Decisions should be reviewed by an independent (non-industry) panel. Punitive damages should be permitted, and awards should include full restitution, including costs and legal fees. "Industry" panel members should be appointed by state securities regulators with the right to determine qualifications. The possibility of providing representation for investors with limited resources should be considered.

William F. Jordan

Professor of Accounting

Florida State University

Tallahassee

Congratulations on the excellent article. Now, how about a piece on "Can you trust your lawyer?" I have been deceived and cheated by many lawyers, but never by my stockbroker. The statement that "too many brokers are working in their own interests, not yours" could easily be applied to all lawyers.

Stockbrokers are closely watched by the SEC and state authorities, in addition to their own people. But there are close to 1 million lawyers not watched by anyone--except themselves, through bar associations.

Keith Wentz

Wentz Management Co.

San Francisco

I was stunned to read that Merrill Lynch claims that it does not have sales contests.

As a matter of fact, for several years Merrill Lynch has had what is known as the Master's Contest in which points are awarded for selling a Financial Foundation, a $175 (soon to be $250) boilerplate financial plan, 50 to 60 pages hardbound, that is the centerpiece of Merrill's new thrust to become a planning-based firm. Financial consultants who obtain enough points win trips to exotic locations. The 1995 Master's Contest is going on right now.

Richard S. Haas

Sarasota, Fla.

InfHwyHobo@aol.com

Editor's note: Merrill Lynch says it does not have contests for specific products, such as a stock or a mutual fund. It says it awards trips for financial consultants who meet various criteria, which include providing a number of financial plans for customers under the Master's Program. It denies that the approach constitutes a contest and says the plans are not transaction-oriented.

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