Making Big Money From Your Client/Broker Relationship

It’s fascinating to observe the stock market on a daily basis. You really get to see how enthusiasm for stocks (or groups of stocks) moves in waves. When the stock market isn’t doing anything, it hurts to watch your holdings. Naturally, when the stock market is going down in value, it hurts even more. But, if you don’t own stocks, then you can’t participate in their capital appreciation. It takes courage to be a stock market speculator, and investment risk is always high.

People ask me all the time about what stocks they should be buying. Even my neighbors want to know what stocks they should be buying. It’s difficult to give investment guidance to individuals on an ongoing basis because the vast majority of people don’t want you to know their real financial situation, and you don’t know what they’ll do with the advice you give.

This is why the client/broker relationship is a difficult one at best. Even if you are trading with a full-service broker and paying them good commissions, they just don’t have time (or the inclination) to be helping you buy and sell the best stocks on a regular basis. For most stock brokers, their business is to gather assets and the best assets to gather are those that are invested in mutual funds, not individual stocks. This is the case because mutual funds (otherwise known as managed money) are a low maintenance asset for the broker that pays ongoing trailer fees. The broker can be out on the golf course trying to build relationships with doctors, instead of trying to come up with a great new stock in which to invest.

Even though brokers can make big money, the only way you can make big money from your client/broker relationship is to do the research yourself. Full-service brokers do have some advantages over discount brokers. If you want to trade stocks with a full- service broker, the best way to do it is to agree beforehand on a big discount on commissions for stocks that you pick yourself. If the broker comes up with a good idea, pay the full commission on entry, and full commission on exit if the trade works out.

The brokerage industry has always been a highly competitive one. There’s no reason why you as an investors should have to pay if there’s no performance.