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Lesson 8. Brokers and Brokerage Houses > Full Service Stockbrokers - Pg. 43

Brokers and Brokerage Houses 43 The average stockbroker, however, does have to make a living. So, for example, a stockbroker with his or her huge wealth of knowledge tells you that purchasing stock in XYZ Company is the single best thing you can do. You invest as the stockbroker tells you to; after all, who are you to second- guess the stockbroker? You're a dentist with little or no knowledge of how all this works, whereas the broker has years of experience and access to a substantial amount of firm research-- usually from within the brokerage house itself. So, the stockbroker takes a commission for placing the pur- chase order. The stockbroker is happy; you're happy. What could be wrong? Did the stockbroker mention that the reason you should buy XYZ Company stock is also because he or she needs to sell a certain amount of XYZ Company's stock in order to retain his or her account, and the broker was running pretty close to the end of the month without having reached that quota? Or did the stockbroker mention that the company is giving him or her a cut of the sale out of the backside for each share the broker places with a client? The stockbroker wasn't lying about XYZ Company stock being the best purchase you could make. The broker just failed to mention that the payday was his or hers, not yours. Also, the "research" that you thought would make a difference, and that went largely unnoticed in this transaction was flawed anyway. The analysts who compile this research are under extraordinary pressure from upper management as well as from the clients themselves to back up the interests of the company. Not necessarily to lie, mind you, but to present the information in its best--or in the case of the competitor, the worst--possible light. Caution A full service broker usually manages his or her client's account directly and charges the highest commissions. And finally, from personal experience, many people develop a good working relationship with their brokers and a strong sense of loyalty keeps them as clients. Even in these situations, however, be