Close-Up: Stockbrokers

Physician's Money DigestJanuary31 2004
Volume 11
Issue 2

Presented by McNeil, makers of Tylenol.


Stockbrokers: Licensed/registered individuals who buy and sell shares on the stock exchange for theirinvestors. In return, they earn commissions that are based on the size of their clients' investments. They arealso known as account executives.

Investing in the stock market can be complicated.Stockbrokers help to clarify some of that confusion.There are two categories of brokeragefirms to be aware of: full-service and discountfirms. According to the Iowa Insurance Division, afull-service firm and its stockbrokers recommend specificsecurities and give advice on securities to fit aphysician-investor's financial situation. Investors paya commission for this service. A discount brokeragefirm makes securities purchases and sales at a lowercommission rate, but generally does not provide specificadvice to their clients.

The Die Broke Complete Book of Money

In (Harper Collins; 2001), author Stephen Pollan notesthat while the majority of the nations' 100,000 stockbrokersare highly ethical, the way they earn theirmoney makes it easy to view them as salespeoplerather than unbiased financial counselors. If they recommenda stock and you buy it, they receive a commission.If the stock goes down and you sell it, theymake a second commission. Regardless of how youfair when following their advice, they make money.That's why it's important to take careful steps whenchoosing a stockbroker.

Selection ProcessThe first thing you want to do is find a stockbrokerwith a good track record. Pollan suggests you start bytalking to fellow physician-investors. Your accountant,attorney, or other acquaintance may have already developeda successful relationship with a stockbroker. Still,their investment goals may be different than yours. Sowhen you begin interviewing candidates, ask to see theperformance of several of their clients whose investmentgoals are similar to yours. Also, check with your statesecurities administrator and the National Association ofSecurities Dealers (NASD) to see if any complaints havebeen filed against the broker.

Find out how long the individual has been a broker.Preferably, you want someone with at least 5 years'experience. It's important to know if the broker specializesin certain types of investments. If you're looking tobuild a bond portfolio, you don't want someone whospecializes in mutual funds. Where they get their financialadvice is also important. If they're not tapping intoa variety of resources, such as institutional research andpersonal industry contacts, you might as well be makingyour own investment decisions.

In addition, meet the broker at their place of business,not in your home. It's important to see their workenvironment. Also, it's easier for you to get up and walkout than to push the broker out the front door if you'redisinterested. You won't feel quite as guilty about notpurchasing through them.

Working Relationship

Stockbrokers provide a range of services for theirclients. Their first obligation is to get to know you andto understand who you are, your financial condition,and your financial goals. They should also keep you informed,providing a prospectus or other importantinformation about any security being considered forpurchase. The stockbroker also provides notice of confirmation on all sales and purchases, including thedetails of price, proceeds, and charges. This should bedone within a few days after the transaction.


The Iowa Insurance Division recommends keepingseveral important points in mind when working witha stockbroker. Remember that the money beinginvested is your money. You should understand all therisks involved and have all your questions adequatelyanswered by the stockbroker. Do not approve anypurchase until you are completely satisfied. In addition,keep accurate records of your investment activityand review all confirmations and account statementscarefully. If there's something you don't understand,ask. The stockbroker is receiving acommission on every purchase or sale made. They areworking for you.

Information on Stockbrokers

A wide range of information on stockbrokers isavailable online. You can start by checking outthe NASD (800-289-9999; Click onthe Broker/Advisor Information link on the site'shome page.

If an investment advisor manages less than $25million in client assets, they must be registered withthe state security agency. For your state regulator,contact the North American Securities AdministratorsAssociation (202-737-0900;

Conversely, investment advisors who manage anexcess of $25 million in client assets must be registeredwith the SEC (800-732-0330; SEC offers advice about selecting and workingwith investment advisors.

The SEC also has an index of online publicationsfor investors, which contains many articles of interestto anyone who wants to invest money. It's availableat

Pop Quiz

1) There are two categories of brokerage firms: fullservice and

  1. Half-full service
  2. Half-empty service
  3. Discount service
  4. Potluck service

2) It's important to work with a broker who has at least

  1. 5 years' experience
  2. 10 years' experience
  3. 15 years' experience
  4. 20 years' experience

3) The best location to meet with a prospective broker is

  1. Your home
  2. Their office
  3. A neutral site
  4. The local diner

4) Following all transactions, stockbrokers should provideclients with

  1. A prospectus
  2. A confirmation
  3. A crying towel
  4. A good alibi

5) Investment advisors who manage an excess of $25million in client assets must be registered with the

  1. NASD
  3. SEC
  4. EXPN

Answers: 1) c; 2) a; 3) b; 4) b; 5) c.

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