Discount brokerage grows as others cut back

THE BALTIMORE EVENING SUN

One on One is a weekly feature offering excerpts of interviews conducted by The Evening Sun with newsworthy business leaders. Harold N. Peremel is president of Peremel & Co. Inc., Maryland's largest and oldest locally owned discount stock brokerage firm.

Q. Your firm had a 64 percent growth rate in new accounts and a 13 percent jump in revenue in 1990. Considering that other stock brokerage firms lost business during last year, how did your firm manage to grow?

A.We made a basic premise and a basic decision, and that decision was to aggressively market in the salary environment. I've been a little conservative and I would have held back, but when I have a next generation of people in here -- family -- they came out of college, and said marketing is the way to get them [customers]. So I listened to them, and we have experienced this growth because of this marketing. Aggressive marketing. That's the key. And we've let more people know what are services are and what we've done, and therein lies the secret of our growth.

Q. You're a discount brokerage firm. How does a discount broker differ from a regular broker?

A. A discount broker is a person who can offer a substantial amount of services by lowering their commission rates. For example, a person would go into Merrill Lynch and buy a thousand shares of stork. A thousand shares of stock could cost $800 in commission. We'll charge you $100 for the same thing. So we are quite a bit different costwise and yet we offer many of the services that full-service firm offers.

Q. You had told me earlier that you are primarily a brokerage firm for people who know what they want. Should people come here who really don't know what they want, who are just getting into the stock market for the first time?

A. I believe that a person who really needs a lot of guidance should go to some other kind of firm -- a major firm or a good regional firm. But a person who knows what he wants to do, we're the place for him to be.

Q. What would you say is the general profile of your customer as far as age, income, market sophistication?

A. Our profile is a person from 35 [years of age] on up. Somebody who has an income of $35,000 and up. I would like to back track for one second. We have had people who call us up and say, do you handle this particular mutual fund. Well, a mutual fund which is not very sophisticated. And again there are many different mutual funds depending upon what their objectives are. So that's another avenue which is not so sophisticated. But generally speaking, again, we're for the more sophisticated individual.

Q. I understand that you will be changing your correspondent broker here in the near future. Could you tell us whom you're changing from and to and how this will change your service?

A. For the past six months we have been looking to upgrade our services and the strength of the organization. Many years ago, I cleared through a firm called Cowen & Co. which has been in business since 1918. I recently went back to this company and the same people who I used to do business [ with years ago] are still there which showed me quite a bit of stability. They are one of the outstanding firms on Wall Street. They will offer us the latest state of the art communications systems; they will offer us research for people who want it. . . . I think they will be much more efficient and they have the strength, and the financial strength and the quality of service, to help make us a stronger organization for the 1990s. That's what I was basically looking for. So I am very happy about it, and all our clients are going to really benefit from this.

Q. Could you explain what exactly a correspondent broker is, what role it serves?

A. Sure. A correspondent broker is someone who will do the processing of our order tickets, they will collect dividends, they will issue statements, and also they will provide you with additional services such as a money market if you need it. They are a very important part of our business, and we are strong and becoming stronger if we have a very strong, successful correspondent in back of us.

Q. You had mentioned earlier that your success last year was due to your aggressive marketing. Could you elaborate on what your strategy in marketing was?

A. Our strategy in marketing was to let people know what we're all about. I had occasionally put ads in the paper. I had been around for 30 years, and people knew me by referral or my networking ability. But we really made a decision to go out and spread the story of what we're all about, and we went to the papers. We went to the radio. We went to magazines. We went to the Sundial [a telephone information service of the Baltimore Sun]. And we've seen the benefits. And that's the main reason why we've increased our penetration, plus once a person comes here, they just don't have one trade. The question was asked by a broker who came here to apply for a job this past Saturday, and he says I can't believe that people would call you and continue to call and put trades in. I said, 'Are you kidding?' People here have been dealing with us continuously -- because they are very happy. They see all the savings they've bought. People are just amazed when they see how we work.

Q. Until recently, the market was going down. With the beginning of the war it has been going back up, but during the time that it was steadily going down, how did your clients react to that? Did you get any sort of animosity from them blaming you for the bad market?

A. Remember, our business is a lot different than the average brokerage firm. Ninety-nine percent of our business is unsolicited business. People call us. We're not like the broker who calls up and says, 'Buy a 1000 shares or 500 shares of stock.' We don't have that. They're calling us to say, 'Let's buy this or let's sell this.' So we didn't experience any animosity as far as clients. Our growth continued. I was in the Orient when the invasion started on Aug. 2, but we were extremely busy. Extremely busy. And it's continuing. So the point we're making is in all kinds of markets, we've experienced growth. And I think it's basically FTC because of the marketing. When a person has money and they want to invest it, they invest it. And it's either they call Merrill Lynch or Legg Mason or they're going to call us. We're going to get the call when they request an information package.

Q. So you don't so much sell stocks as offer a cheaper way of buying stocks?

A. I think the marketing is a better way. We're really not a selling organization. We're a marketing organization. I think there's a difference. Our direct mail is a form of marketing. What we're doing [is] we're really marketing a service . . .

Q. What type of person should invest in the stock market. What should their financial situation be and what sort of attitude should they bring to those investments?

A. I believe, first of all we have to decide on a person's objective. I think a younger person can start out. I'm a great believer in education. I have preached this for many years. I will take time with a person who is not very sophisticated or someone will say, 'I'm going to send this young person over. Will you spend some time with them to tell them about the stock market? Can you tell them the investments?' And I am more than happy to do that. I tell people, 'Start out by reading the Wall Street Journal. Educate yourself.' But it's a way of building wealth, but you must take a long-term view, you must have quality and you can't do things on a daily basis. But the level of sophistication goes all over the

scene here. A young person, a woman who needs money, she's divorced or widowed, there are many people who have money that has to be invested other than being in a bank. I don't think they should put all their eggs in one basket, but they should diversify, and as I said before, I am a strong believer in diversifying assets around the world. We are in a worldwide economy today, and I've seen this, and I try to practice what I preach.

Q. A lot of times you see these articles or television reports about somebody being caught in an investment which was said to be risky in the prospectus. However, they never read the prospectus. Do you encourage your clients to read prospectuses of any investment they make?

A. Well, unfortunately, many prospectuses are very difficult for the average person to understand. It depends on the kind of investment. Now the people who invested in real estate partnerships had a lot of difficulty. The real estate market went down, and a lot of people lost a lot of money. But I think that if a person buys a good mutual fund for example and they want tax-free income and that's their objective, well, there's nothing wrong with that. If a person wants to invest in a long-term growth fund, that's another objective. . . . I believe they have to have a long-term objective, and they have to diversify all their assets.

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