Need a Broker? Invest Time to Shop Around First


Every year, employees of San Francisco’s Prophet Market Research & Consulting Co. don their confused-little-old-lady looks or their men-who-know-too-little identities and go shopping for a broker.

Like the people who secretly shop at Macy’s and Nordstrom to make sure the salesclerks are doing their jobs, Prophet’s secret shoppers check out the bankers and brokers who sell us our investments.

Year after year, their findings are disturbing. In the most recent report, Prophet found that almost half of the 300 brokers in its study started pitching investments before they had discovered at least one key fact about their would-be investors--their tax situation. One in three never asked about financial status, and one in four never even discussed the securities the shoppers currently owned or their investment objectives before suggesting new securities.

At the smaller regional firms, one in 10 brokers didn’t ask for information about any of the above before peddling a financial product.

The good news for household names like Smith Barney and Merrill Lynch is that these firms turned up near the top of the list. Merrill Lynch, in particular, told most shoppers that it would be inappropriate to invest before conducting a formal financial plan. National firms seem to have the budget for proper broker training and it’s paying off in more pre-qualifying of clients by brokers.


Brokerage industry problems go deeper than their failure to know their clients, suggests Prophet, after the firm discovered statistically significant gender differences in their findings. Brokers remain less likely to ask female prospects than male prospects about their other assets and securities owned. In more than half of the meetings where specific mutual funds or variable annuities were recommended, no prospectus was given.

In 80% of those same meetings, brokers distributed other information, such as brochures and fact sheets, that in fact were stamped “must be accompanied with or preceded by a recent prospectus.”

According to Prophet, this problem is getting worse.

If you remain broker-bound, at least shop smart. Visit a few and find the one who delves into your personal situation, including your long-range needs, your tax bracket and your other securities. Deconstruct the commission schedules and find out what you are getting for what you’re paying. Request every applicable prospectus and if you don’t understand it, ask your broker to show you what to look for and how to read it.

Remember that most brokers still make their money by talking customers into buying and selling and buying and selling, not getting rich slowly.


Linda Stern is a freelance writer who covers personal finance issues for Reuters. She can be reached at