FOOL ON THE HILL
The Broker Twilight Zone

There are bad apples in every bunch, but you don't want to get one. We had dinner with another dissatisfied client of a full-service broker paid by commissions. Here is her story.

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By Tom Jacobs (TMF Tom9)
May 9, 2002

The Broker Twilight Zone is full of bizarre tales. William Shatner on the wing of the company plane, screaming, "You lost all my money!" You know.

This is another tale, and it really happened, although we've changed the names. Has anything like it happened to you?

Our out-of-town visitor, Sandy, is a professional woman in her early 40s. She's in a developing relationship but not yet knotted. Smart and worldly, she changed careers a few years ago and has dramatically increased both her earnings and net worth. She told us it was time to take control of her finances and invest for her future. Rejoicing, I slipped her a copy of our own little red book, The Motley Fool Manifesto, as she told the story of her awakening.

"I had a mutual fund sitting there. An Asia-Pacific Fund from Morgan Lynch Gibraltar. I went through some old statements -- I keep everything -- and found it was worth about $100 less than what I paid 10 years ago. Not much money at all, but I mean, if it had been in an S&P 500 index fund, it would not be flat with 10 years ago.

"I remembered the face of the broker who sold it to me, but nothing else. I looked on my most recent statement, and there was the broker's name at Morgan Lynch, office address, and phone number. I called the number. That's where the fun began. There was no John Manville. 'We have no one here by that name,' the receptionist said.

"I have to be pretty forceful at work. At first, I was astonished at the chutzpah of my new colleagues, and now I do the same things. There's no choice. It's a tough business in good times and now everyone's fighting over a smaller market. So I called back and insisted, you know, 'This is the name on my statement, and this is the office. He's there. Find him, now!' It took a few more tries with the same woman, and when she realized I wasn't going away, she miraculously discovers that they have a Jack Manville. Apparently, John goes by Jack. Somehow, in an office of a few dozen people, she couldn't even be bothered to offer me another guy with the same uncommon last name."

At the used-car lot
"So I reach Jack, and, first off, there are signs. The hearty, 'I remember you,' though we haven't spoken in 10 years. I hate stuff like that. Then the noises of furious activity -- shuffling papers, the phone moving around, and he's calling remarks out to other people interspersed with talking with me. At one point, he just puts the phone down -- I can hear it hit the desk -- and is gone for I don't know how long. I almost hang up, but it was so much work to get through to him that I don't. I mean, the guy walks away from the phone with no more than a 'Just a minute'!

"After an eon, he comes back. 'I can't get my computer to work,' he says, by way of excuse. So he can't find my record on the computer, but I tell him what's up. I'd like to explore making this money work better for me, move it to a better-performing fund. 'That's not a good idea,' he says.

"I ask why. 'It's the best-performing fund,' he says." Sandy gawks at us. "Hey, I've been reading Fool.com, I know enough to question that. I ask, 'Compared to what?' Asia funds, international funds? Horse racing?

"'All of them,' he says, but that's as far as he goes. Nothing more. I'm thinking, for a quarter? A year? And what are the expenses? I ask him to send me some information. The next day, which truly is pretty good, I receive his letter. Actually, it's graph paper, just like you had in school for geometry class. It's a chart, in pencil, with one line. This apparently represents the fund. There's a sloping line down, and then the line takes off upward sharply. No numbers to tell you the magnitude. I mean, this is the information? It went down, and now it's going up? No benchmark -- no S&P 500, or Dow, or anything. The time periods? Does he think I'm an idiot?

"We talk again. I push him, and he says, 'Well, I suppose we could always put you in an S&P 500 Fund,' as if talking about the oldest, rustiest car on the lot. Here I've got him. I happen to know that Morgan Lynch Gibraltar's version of that index fund has four times the expenses of, say, Vanguard's. No way."

As I talk with Sandy, I'm thinking the stories don't get any better than this. This guy hasn't bothered even to try to learn that Sandy is a much better prospective customer than 10 years before. No questions, not even the "How's the job going?" sales-guy questions that elicit helpful information. If this is any indication, large brokerages deserve to lose customers in droves to discount brokers. Here is their target market, and this is customer service?

Sandy concluded, "I guess I really should just do this myself, if this is what they're going to do to me." Bingo.

It's easy to pick out a bad apple in every bushel, whether brokers, politicians, lawyers, doctors, teachers, or priests. But it's been happening too much lately to people I care about -- not long ago I wrote about my niece's broker at Stearns Lehman Graybeard who told her, "There was no more money to be made in the U.S., we ought to move you to Europe funds"? With exceptions -- and there are exceptions in every group -- full-service brokers that are paid by commission are salespeople and, if anything like Sandy's, not worth it.

You are the best person to manage your money. Get all the help you need from sources you trust, but don't accept anything less than the best.

Time for a discount broker? Find one at our Discount Broker Center. Need independent third-party financial advice? Let TMF Money Advisor serve as your low-cost money helper. Sign up today to get our Online Retirement Seminar and workbook free!

Tom Jacobs (TMF Tom9) is a senior something at The Motley Fool, but maybe he just has senioritis. To see his stock holdings, view his profile, and check out The Motley Fool's disclosure policy.