Don’t Do Business with Full-Commission Stock Brokers

October 16th, 2007 • Related • Filed Under • by admin

When you start planning for your retirement and consider all of the different companies that you can open a Roth IRA, Traditional IRA, or other retirement plan with, you’ll find that there are two different groups of companies that will sell you a retirement account. There are stock brokers that receive a full commission for every investment that they sell, and those who you paid for the financial advice that you offer. Full commissioned stock brokers have every incentive to sell you whatever investment makes them the most money rather than the financial product that makes the most sense for you, which is why you should always avoid them. Visit a fee-only financial planner or do the research yourself and register with a discount brokerage firm such as Vanguard or Fidelity.

The main problem with full commissioned stock brokers is that they are working for themselves and not for you. There are some full commissioned brokers who have your best interest in mind, but there are just as many who want to sell you whichever financial product of the day will sell them the highest commission. They’ll come up with a sales pitch that makes the product sound like the best thing since sliced bread when in reality the only person that that financial product will make money for is the stock broker selling you the product.

There’s this mentality in the full commissioned brokerage industry that its sales people shouldn’t really have to follow any code of ethics and even persuaded congress that brokers shouldn’t be held liable for making you go broke as long as they present you with what’s loosely defined as “suitable” investment options.

If you do sign up with a full commissioned broker, you’ll end up waving your right to take them to court if they put you in an inappropriate investment and you end up losing most or all of your money. You’ll instead be forced to go through a mandatory arbitration process which is wholly stacked in favor of the brokerage industry. Recent statistics show that the average person who fights a brokerage and wins because the broker put them in a very inappropriate investment will only receive 10% of their original funds back. There is very little recourse when dealing with a full commissioned stock broker that cheats you and it is better just to avoid that whole mess to begin with.

When setting up your retirement account or have other investment needs, visit a fee only financial planner. These are people that you are paying for their advice and will not receive any commission if you purchase a product from them. If you’re dealing with any significant amount of money, you should consider two or three financial planners and go with the one that you are the most comfortable with.