Good broker is a bargain at almost any price; But many investors don't need hand held; Securities industry


Does anyone need a full-service stockbroker?

The case for such services seemed to weaken substantially recently when the largest practitioner of that approach, Merrill Lynch, announced that it will be getting into the discount brokerage business by offering $29.95 commissions later this year.

Full-service brokers charge much more than that, mainly because they provide investment advice, which discounters don't.

Undoubtedly, many thousands of full-service brokers provide good value, but it is increasingly apparent that many, perhaps most, investors can do fine without them.

Avoid the mere salespeople

For some, it might be wiser to hire a fee-only financial adviser to build a comprehensive plan that matches investment goals to short- and long-term needs, and includes estate and tax planning, prospects for income gains or declines, and other factors.

Not many brokers do all that, and the worst serve merely as salespeople too eager to rack up commissions.

If an adviser's financial plan is thorough enough, one should be able to meet most investment needs by picking an assortment of mutual funds with no further professional help.

Many advisers will recommend specific funds.

One can start small

The investor who wants to dabble in individual stocks or bonds can do it through discounters, some of which charge less than $10 a trade.

Rock-bottom commissions make it possible to start small, betting a few hundred or a few thousand dollars at a time. It's hard to come out ahead on small trades with a full-service broker who charges $100 or $200 per transaction.

Still, plenty of investors want the advice of full-service brokers. There is no way to guarantee you'll be happy with the result, but you can improve the odds by asking the right questions:

Who are your typical customers?

You want a broker who is accustomed to serving people with financial concerns similar to yours.

How will you tailor your recommendations to me?

A good broker will question you extensively about your finances, investment goals and willingness to take risk. Steer clear of one who emphasizes his great stock-picking abilities.

How often will we talk?

If you want to kick things around with your broker once a week, will he or she be available? Will the broker call only to make a buy or sell recommendation, or will you talk regularly to review the portfolio and plot strategy?

What is your educational and professional background? Have you been disciplined by a regula- tory organization? What firms have you worked for?

Get the broker's Central Registration Depository (CRD) number and check it out with the National Association of Securities Dealers (800-289-9999), or online at http: //

How do you get paid?

Ask for the commission schedule and a list of all other fees. Commissions are often negotiable. Figure the purchase and sale commissions as a percentage of the typical investment you'll make.

That will show how much an investment would have to gain for you to break even.

Will you consider tax issues?

Taxes can chew up investment gains. A portfolio needs to be managed to minimize this with techniques such as offseting gains with losses.

If the broker doesn't speak knowledgeably about this, get someone else.

Who will control the account?

Don't give the broker authority to buy and sell on his own.

What services will I get?

Will you receive the firm's research reports and newsletters? Will you get statements that make it easy to figure your investment performance and to calculate gains and losses for taxes? Ask for samples.

Can I start small?

To evaluate a broker's advice, you should get his or her recommendations for six months or a year before starting to invest.

If you can't get that, can you get discounted commissions so that you can afford to invest small amounts during a trial period?

How will we measure results? Set a benchmark, using the Standard & Poor's 500 or some other gauge to measure the success of the broker's recommendations.

Can I have references?

A broker should allow you to talk to some of this other customers, though obviously you'll get names only of happy ones. Ask references about investments that did poorly.

Did the broker take the initiative to correct mistakes quickly? Was he easy to reach? Did they ever feel pressured to make investments in a hurry, or to buy securities they weren't comfortable with?

Jeff Brown is a business columnist for the Philadelphia Inquirer.

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