Stockbrokers – What to Watch For

The man was happy with his stockbroker. He had only lost 30% during the 2007-2009 meltdown. He had asked to see me because he wanted information on how to reposition assets to more efficiently pay for possible assisted living. When he showed me his statement from a well advertised stockbroker advice company, alarm bells went of in my head.

“I’m very well diversified” he proudly stated. Yes he was diversified. He had four different fund families. Each fund family had $50,000 in them. “You see,”  he continued, “my stockbroker is making sure I don’t lose anything because I’m so spread out.” I studied the statement. In each of the four fund families he had exactly the same spread of categories. In each fund family he had exactly the same type of funds allocated the same amount of money.

There had been no diversification. The stockbroker had simply used the $200,000 to buy $50,000 blocks of the same spread of funds in four different fund families. When I tried to explain to the man that he was NOT diversified, he refused to believe me.

What happened here? Another stockbroker trick to maximize commissions. Each mutual fund family pays higher commissions on the firsdt $50,000 of investments. After that, commissions drop significantly. So, as is common for stockbrokers, this stockbroker maximized his commissions by investing in THE SAME CLASS OF FUNDS in four different companies.

‘So what?’ you say. “Cost”. If you are paying your stockbrokers’ commissions at one higher rate for the first $50,000, (say 2%) and then it drops to .05% or less for the next $150,000, the cost of the investment is far less than paying 2% on the entire $200,000. So, if your mutual funds go up in value you are paying 2%. If the funds lose value you are paying 2%. All along the stockbroker is making a higher commission and you are paying higher fees.


Who wants to give a stockbroker 2% when they should be making .05% or less on your investments over $50,000? If you look at your statement and have any questions, please contact me and get an objective opinion.