A reader wrote and asked: "In my brokerage statement, I noticed that my broker is a 'specialist' in one of the stocks that I hold. It seems odd that the brokerage would recommend this stock to me as a 'good buy.' Is something sneaky going on here?"
Stock exchanges assign securities to various members of the exchange. These members are called "specialists" -- it's their job to "make a market" in the security, by processing buy and sell orders fairly and efficiently. To keep orders flowing smoothly, they'll even buy and sell the security for their own account. The specialists profit from the spread, which is the difference between the buy and sell price of the security.
The fact that your brokerage is a specialist for the stock merely means that it buys and sells the stock for people. It may even result in better prices for you. When a brokerage has to rely on someone else to execute a trade, it often costs the customer more.
That said, brokerages frequently find themselves with too much of a certain stock on hand and may try to push it to customers. This happens more often than it should. When a firm is a specialist in a stock they recommend, you should be extra diligent in your research. You don't want less-than-first-class stock inventory dumped into your account. Better still, don't rely on the recommendations of others, but do your own research and make your own decisions as to what you want to buy.
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You can get much more advice on evaluating and choosing the best brokerage for you in our Broker Center -- check it out. These other Fool articles on brokerages may also be of interest:
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