Just as you would scrutinize a surgeon’s credentials before scheduling an operation, you should be choosy when finding professionals to tend to your club’s financial health. Financial advisors range in reputation from highly trained professionals to fly-by-night con artists. So, how can you separate the helpers from the hucksters?
First, your club must decide whether it even needs someone to advise members on how to invest its money. You definitely want to invite financial planners and stockbrokers to speak before the group at regular club meetings and to provide a few pointers, but don’t feel pressured into turning your portfolio over to a stockbroker.
Initially, when AT&T employees formed the Alliance Investment Group, club President Nate Watson was one of two people who had previous experience investing in the stock market. In order to make the other members feel more comfortable about picking stocks, the group chose to work with a full-service broker who could provide a little hand holding. A year later, the group was left feeling empty-handed. Dissatisfied with the lack of services they received, they opened an account with another full-service broker. The group has been with A.G. Edwards ever since.
“A.G. Edwards was better in terms of providing the services and resources we needed, like analysts’ reports,” says Watson. “But the main service our broker, Israel Maldonado, provides is that he will give us a complete analysis of our portfolio and make suggestions on what we should buy, hold or sell based on asset allocation. He will provide a very extensive report for us annually, and more frequently if we request it. He is always there to help us when we need it.”
There’s no getting around the fact that in order to buy and sell stock, your club must establish an account with a broker. However, you do have your pick: full-service, discount and deep discount. Keep in mind that while there are independent brokers-those who don’t work for a firm-most are affiliated with a major house.
Full-Service Brokers. Plain and simple: A stockbroker buys and sells securities (e.g., stocks and bonds) and provides financial advice. He or she is a commission-only advisor, meaning your broker will make investment recommendations, but won’t charge you for the advice. Should you go ahead and purchase a security a broker recommends, he or she will receive a commission.
Discount Brokers. You can save up to 60% on commissions with discount brokers, since they don’t employ commissioned reps. Discount brokers such as New York’s Charles Schwab & Co. essentially offer do-it-yourself investing: They don’t tell you how to invest your club’s money. However, they do provide some personal advice, news, investment materials and a few perks at a lower cost, including money-market accounts and mutual funds.
Deep-Discount Brokers. These firms are the cheapest of the investment spectrum. You can save up to 80%, sometimes more. Deep discounters such as Brown & Co. and Ameritrade Inc. execute trades at rock-bottom prices. At the same time, these firms offer bare-bones services-no research, no advice.
SHOPPING FOR A BROKER