Do Discount Brokers Give Advice?

The answer depends on what your definition of advice is.  It is not a secret that advice for Discount Brokers greatly revolves around scalability.  In other words, the firm will ask itself, “How can we get a massive number of clients into some type of model portfolio, in a very efficient manner”.  For many firms, the answer will revolve around a similar approach, which is as follows:

Hire somebody right out of college with little or no other investment experience.

Train them on the products of their company, and make them believe that all other companies products are inferior to what they have to offer.

Have them learn to build rapport in 10 minutes, assess you within 20 minutes, make a recommendation in 10 minutes, and sign the papers hopefully on the first appointment in 5 minutes.  In 45 minutes you should be on your way, and don’t expect that representative to remember anything about you next time you speak as they will have probably sat and or talked with a few hundred people by the time you speak again, and most likely because you called them. Though if you are lucky, they will make some notes of some high points to give the appearance they remember for the next time. 

Depending on the firm, you may not even really need to speak to that person who gave you the advice as you will be asked to call another individual in another state far away. That is how scalability works.  If you truly need the help, this solution may be better than trying it on your own.  If you feel that you should deserve better based upon the hard work it has taken you to accumulate your life savings, I would agree.  I would suggest you look online for a CERTIFIED FINANCIAL PLANNER™ in your local area and set an appointment.  I think you would be impressed by the depth of questioning that will most likely occur and see how that may compare and contrast to the discount advice model.  For example at a Discount Broker you may be asked to explain your risk tolerance by choosing a number between 1-10, 1 being the most conservative, 10 being the most aggressive.  For many, the risk tolerance conversation might end there.  Shouldn’t that conversation be much more in depth?  How about using real dollar examples to illustrate potential market cycles?  How about conversations about how that investor has reacted in years past?  What about using some analysis to examine clients’ goals and current circumstance first? If you are a prospective client of any of these firms, ask the broker to show you the dry erase board which is usually out of clients’ sights, that tracks all of the representatives progress towards sale goals.  I would recommend you choose the one with the lowest numbers.  That could mean they just might have a conscience and/or not be a great salesperson.

What are your experiences and thoughts? Please share!

Till next time…