This article appeared originally in the October 2007 Levitt Letter.
Dear Mark:
Please don’t lump all stockbrokers
into one pot. My husband has been a
stockbroker for 25 years and in the
years since we were both born again
in 1984 and married in 1985, he has
not taken advantage of one single
customer. One of my greatest blessings
has been to hear him say that he could
have had a great commission, but he
didn’t do any business because it would
not have benefited his clients. We both
believe and try to live according to
Proverbs 22:1 “A good name is to be
chosen rather than great riches…”
Honest, God-fearing stockbrokers do
exist. We, too, agree that being debt free
is a biblical principle, and we are. God
bless you and your ministry,
—M.S.
Dear M.S.—
Perhaps it was a mistake for my article
(Sidestepping Your “Friendly” Stockbroker,
August ’07 Levitt Letter, www.levitt.com/newsletters/2007-08.pdf)
to vilify stockbrokers
rather than their industry,
which fosters conflicts of interest that
torpedo investors. That your husband
has to choose between feeding his
family and benefiting his clients is a
colossal pitfall. The book License to
Steal (Anonymous & Harper, 1999)
reveals that brokerage firms recruit
stockbrokers based on how much
they earn for the firm—not for the
client. More often than not, human
nature becomes the culprit as brokerage
firms weed out low-producing
brokers. Warning: stockbrokers are
salesmen, not neutral advisors.
Financial expert Scott Burns
(www.dallasnews.com) points out that
even the most competent, best-intentioned
stockbrokers are incapable, in the
long run, of outperforming low-expense
index funds. Note: the worst of stockbrokers
are highly skilled at masquerading
as “boy scouts”—the epitome of
wolves in sheep’s clothing.
Why do brokerage firms insist to exempt themselves from civil litigation—an avenue of recourse that suffices for grievances against doctors, lawyers, and tobacconists? (That’s right, Dear Reader, every stock brokerage contract contains an NASD—National Association of Securities Dealers—Arbitration Clause.) Once a complaint is brought, both the brokerage and the investor have unlimited strikes in their selection of panelists to adjudicate the arbitration. Consequently, the brokerage can eliminate from the pool any panelists whose past judgments were unfavorable to brokerage firms. The panelists get paid for serving on panels and quickly figure out that if they want future work, they had better not come down too hard on brokerage firms. The downside of a brokerage getting caught mistreating its clients, I believe, is paltry enough that brokerages, on a theoretical level, owe it to their own shareholders to play hardball with customers.
To help you abide by Matt. 25:14-30 and Luke 19:12-27, please review my article, mentioned above, and consider Scott Burns’s advice about investing in low-cost, broadly diversified mutual funds at Vanguard.
