THE BEST STOCKBROKERS They Tell You What to Buy and When to Sell

By Jerry Edgerton and Bruce Hager

October 12, 1987

(MONEY Magazine) – The best reason to invest through a traditional broker is for sound advice about stocks and bonds. An investor who makes his own decisions will usually pay lower commissions at a discount firm. The problem with taking advice from a broker, however, is that brokers are in business to sell. They can increase their take-home pay by pushing high-commission products or by encouraging frequent trading, whether or not the client's interest is served. So where can you turn for a broker who dispenses reasonable, impartial advice? You might start with our list below. To compile this directory of topnotch brokers in 50 major metropolitan areas, we sought recommendations from Yale Hirsch, editor of the investment newsletter Smart Money and the author of the Directory of Exceptional Stockbrokers; executives in the head offices of the brokerage firms themselves; and experienced investors, financial planners and other knowledgeable sources in each city. Money correspondents then interviewed the candidates about their investment philosophies and methods of handling accounts. Last, the list was checked against Securities and Exchange Commission records to weed out brokers ever fined, censured or suspended by the SEC, the National Association of Securities Dealers, major stock exchanges or state regulators for professional misconduct. To be considered for Money's directory, brokers had to be willing to take on new accounts of $20,000 or less for investment in individual securities. This requirement cut out many well-known brokers who accept only accounts of $100,000 or more. It also eliminated brokers who will accept a $20,000 account only if all the money goes into mutual funds, which demand less attention than do stocks and bonds. While mutual funds may be a fine way to invest such a sum, you don't need a broker to buy them. In fact, you are probably better off ; buying funds directly from fund sponsors who charge lower commissions than brokers do -- or none at all. As it is almost impossible to verify how well a broker's stock recommendations have performed, we looked for brokers whose experience suggests strong stock-picking skills. We favored those with independent opinions who did at least some of their own research. Expertise not available elsewhere -- such as familiarity with fast-growing local companies -- also gained points for a broker. We looked for evidence that a broker gives exceptional service and is readily accessible. While he or she may have assistants who can handle queries about housekeeping matters, you should be able to reach your broker quickly for answers to important investment questions. One of the commonest complaints about brokers is that after recommending a stock that does well, they fail to follow up. Clients lose some of their previous gains because they do not receive timely advice. Worse yet are brokers who sell you a loser -- no broker can be right 100% of the time -- and then fail to advise you when to cut your losses. In our list, we have noted those brokers who routinely alert their clients to sell a stock either after a sizable gain has moved the price to a target level or to prevent further losses after an initial drop. We have also indicated whether a broker will increase or decrease the percentage of clients' assets that is invested in stocks because he or she perceives a major change of direction in the market. Some brokers believe that they cannot possibly call such turning points, so they advocate buying solid stocks and holding on to them for the long term. While we believe that the brokers listed here can offer excellent service and profitable investment ideas, not all brokers are right for all investors. Our list gives a capsule description of the investment approach of each broker, including areas of specialization. You are likeliest to find happiness with a broker if you first think through carefully what kind of investor you are and then seek out a broker whose philosophy matches your own.

BOX: THE BEST STOCKBROKERS