INVESTMENT OUTLOOK : MANAGING THE NEW CHOICES : Securities With the Highest Commissions
Most brokers in full-service brokerage houses depend primarily on sales commissions for their compensation. Overall sales volume, of course, is important in determining commissions. But so is the type of securities bought and sold; some generate higher commission fees than others.
Ethical brokers will not base their advice on the amount of commission a particular sale will generate. But it doesn’t hurt an investor to know which are the most profitable investments for a broker.
According to brokers and financial planners, insurance policies and limited partnerships generate the highest commissions.
Insurance policies can carry commissions of 40% to 100% of the first year’s premium, according to Mitchell Keil, a financial planner with IDS Financial Services Inc. in Irvine.
Limited partnership commissions vary according to the deal but are usually generous. However, within the last three years regulators have restricted partnership promoters from offering brokers prizes and other incentives, once as enticing as Tahiti vacations, for selling the investments.
Annuities, a type of insurance policy, are also a good source of commissions, with some paying 3.5% to 6% of the policy’s face amount.
Although stock sales themselves do not carry high commissions, stock option sales, which must be renewed or revoked every three or six months, can be a repeated source of commissions. Mutual funds that carry a load, or initial entry fee, are also among the most lucrative investments a broker can sell. Fees vary widely. (However, mutual funds that do not charge an initial fee are available. Called no-load funds, they usually are purchased directly from the company and not through a broker.)
If you have any questions about commissions generated by your transactions, you should not hesitate to inquire, preferably before the deal is completed to avoid any misunderstandings. In fact, if you think your broker is inexplicably pushing a particular product, you should ask whether he stands to gain any extra incentive provided by the brokerage house or the investment’s backers.
“We always say an informed investor is the best investor,” says Thomas Hale, division manager of Wedbush Morgan Securities in Los Angeles.
THE DIFFERENCE IN FEES
A sampling of commissions charged by two national and two regional full-service brokerage firms, and two discount brokers. The full-service brokers will discount these charges for preferred customers.
100 Shearson Prudential Wedbush shares Merrill Lehman American Morgan Quick Chas. at Lynch Hutton Securities Securities & Reilly Schwab $25 $78.25 $67.75 $58.26 $58.26 $35.00 $49.00* $50 $97.00* $103.00 $88.97* $88.97* $47.76 $49.00* $100 $97.00* $103.00 $88.97* $88.97* $48.44 $49.00*
* maximum on 100 shares
Source: Companies’ rate charts
