Taking Stock: BBB Not Your BFF

Dear Mr. Berko: I'm 79 and widowed. I live with my son, who is a chemical engineer, and I have an account with a big brokerage (copy enclosed). Since 2007, I am down 9 percent, so I've decided to move my account to a broker at Edward Jones. Please give me your opinion of this company. I need about a $12,000 annual income from this $328,000 (4 percent), and anything more than that would be a nice bonus.

My son (we get along real well) says I don't need a broker to pick stocks and insists that he and I can do this together. He is bright and so is his wife, but he doesn't have a lot of experience in the stock market -- although he has been reading your columns for the past 18 years and has saved every one of them. Please advise me. Of course, I will leave all of this money and other stuff to my son and his family when I kick off.

--HR in Jonesboro, Ark.

Dear HR: Edward Jones is a Big Box Brokerage with more than 16,000 offices in the U.S., Canada and England and has been around since 1928. They employ very skilled sales people, and the firm's unusual selling style kind of endorses pushy, high-pressure selling tactics. It's all legal as a nickel, but you might want to review the Internet and read some of the complaints.

I'm not comfortable with Big Box Brokers (BBB), all of whom prefer to peddle exchange traded funds, unit trusts, mutual funds, limited partnerships, realty or oil trusts, plus myriad appealing proprietary products that are hard-pressed to produce average results. Investors don't purchase 300 shares of a preferred stock from a BBB; they are sold a unit trust of preferred stocks. Investors don't invest in municipal bonds from a BBB; they are sold a municipal bond mutual fund. Investors don't put their money in oil stocks, bank stocks, REITS, drug issues or utility stocks; the BBB sells them a mutual fund, an ETF, a unit trust, an income partnership, a variable annuity or a structured limited partnership that represents these issues.

Most stockbrokers hired by BBBs are primarily terrific sales people, and a goodly number of them lack the intellectual capacity to select a portfolio of growth or income issues or municipal bonds. And because most of these brokers have average intelligence, their firms discourage them from recommending securities like Murphy Oil, Urban Outfitters, Valspar, Peet's, Dunkin' Donuts, Atlas Energy or Teva Pharmaceutical. They are strongly encouraged to peddle ''pre-approved'' proprietary products with seriously high commissions and annual fees that (in the main) produce seriously under-performing results.

Yes, there are exceptions, and there are usually brokers who have been in the business of recommending real stocks for 20 to 30-plus years. They're specialists, and they're good at it, but their numbers are few. Please know that BBBs are hired because they are outstanding salesmen and will follow the company's mantra to sell all those i-shares, ETFs, partnerships, mutual funds, annuities and stuff. Do you think Merrill would hire a brilliant 32-year-old with a boring personality, buckteeth and baggy pants? Do you think UBS, Edward Jones or Prudential would hire that person?

I have a very high regard for chemical engineers. I know two of them well, and they are an extra-special species of human. So if your son has been reading my column for 18 years, he must be a well-informed, savvy and capable fellow. And because your goals do not require rocket science, I think you and your boy can manage this money well and have a lot of fun doing it together. Tell your boy to look at some of the oil and gas pipeline stocks discussed in previous columns, and then pick up some ATT, as well as Verizon, add some of the big food stocks with good dividend records, include a few oil issues, a few defense stocks, some of the high-yielding convertible and preferred stocks I recently reviewed and, finally, sprinkle with a few drug stocks for flavor.

Meanwhile, move your account to Schwab or Fidelity. Rather than paying $160 to buy 300 shares of ATT or Kraft or Pfizer or Kellogg or Yum Brands or Bank of America converts, the commissions will only be $8 per issue. Now you can live comfortably ever after.

Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775, or email him at mjberko@ yahoo.com. To find out more about Malcolm Berko and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate website at www. creators.com.

Copyright 2012 Creators.com

Published: Mon, Apr 9, 2012

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