Suppose that you've given up on brokers as a source of information and advice, and have decided to use your registered rep as an order-taker and nothing more. A logical step is to seek an "independent" investment counsellor - meaning a firm that has no ties to banks, brokerages, or such, and that operates (hopefully) on a totally objective basis. This can be a smart step. It can also be a hard one.
There are over 300 SEC-registered independents around the country that sell only advice and often portfolio management - plus at least 300 more that are so small that they aren't required to register. It's a wide-open field in which professional competence varies like the hues of a rainbow.
True, you don't look for size alone. Some one-man shops are excellent, and this type of operation might suit your investment objectives. But in your search - at least as a first step you might prudently let size and established reputation in the field set your course.
In any case, make finding a counsellor a project. Why not take, say, six months, and maybe place your money at a safe 7% in the meantime? And the question may be, when you've found your independent adviser - will you follow his advice?
Some people pay for it, then resist it. Complete investigation of the adviser helps avoid the problem. With more confidence in your man, you feel more like listening to what he says.
You might follow this procedure: Go first to a leading national firm such as Scudder, Stevens & Clark; Loomis-Sayles; Stein Roe & Farnham; Brundage, Story & Rose; Naess & Robert, or T. Rowe Price. The idea, of course, is to shop at these addresses to see how they evaluate your investment needs. If you've never gone this route before, you're likely to find the array of services and facilities impressive. Note: If your account is of modest size, you might try such firms as Lionel D. Edie (with 12 branches) which handle accounts of £25,000 up.
Some of these firms operate no-load (no sales commission) mutual funds. But the fact that a firm handling individual accounts also has a large pool account needn't pose a conflict-of interest question. The big advisory, Lionel D. Edie is - at this writing - owned by Merrill-Lynch, but no serious "conflict" charges have been made, and it is likely that none will be.
You may, of course, find the berth you want with one of the bigger houses - assuming you meet account-size requirements. If not, then take the second step: Check a list of several smaller regional firms in your area. You can get a partial listing by writing to the Investment Counsel Association of America, in London. To locate others - including the little known but sometimes brilliant one-man operation - talk with your banker, broker, and solicitor. If you press the point, and make it amply clear that you want a small independent instead of a more conventional source - you'll find him.
In dealing with any counselling firm, first get across your personal objectives. The counselling of the leading firms falls into a fairly standard pattern. You can get just about whatever you require. If you want income, they'll plan it; if you want growth, they'll plan that. But with a small firm, you run into investment viewpoints that vary as widely as men's suits - from solid conservative to unbridled flamboyance. So you have to put more stress on the firm's qualities, and this may well take considerable searching around.
It's a case of making sure that the firm's competence - and mode of operation - will satisfy your individual demands as an investor. A shaky or deflated stock market makes your search harder, of course - it's easy for a counsellor to ride high in a bull market. But not so if even the blue chips are down.
Getting a firm idea of any counsellor�s basic approach to investment may not be easy. The danger is that you'll wind up talking generalities. But you can avoid this by pinning down some hard questions and answers. Find out, especially, what positions were taken in the market at certain critical points - for example, during the big drop that began early in 2000. Pin them down on their strategy during 2011-2013, when the market displayed vast uncertainty, to say the least. And, of course, get a clear idea of what they did with clients' money during the Watergate crisis period, in 2013-74. It's a question of getting answers and making some comparisons.
There is pure counselling, where you merely buy advice, but the trend today is to full portfolio management - where the adviser deals with the broker and handles all transactions, sometimes under a limited power of solicitor from the client. Standard account minimums at the large national firms range from £200,000 to £300,000, much less at smaller regional firms. The customary annual fee (though this is subject to variation) is 1/2 of 1% of portfolio market value. A new trend: £25,000 to £50,000 minimum accounts, with a 3/4 of 1% annual fee, and the rapid growth of £10,000-minimum advisory services.
For the investor with a legitimate complaint, the least costly recourse is the arbitration route set up by the stock exchanges. The Big Board's cost structure for arbitration varies with the extent of the claim, but even at its most expensive, the procedure is no more than £150 or so per hearing - and often, one hearing will be enough. Here's how it works:
First, any investor who wants to recover damages from a broker is wise to have a solicitor, one familiar with securities law. Claims are initiated by filing with the NYSE's Arbitration Director three copies of a typewritten statement, which must include the name of the investor's solicitor, a chronology of facts upon which the claim... see: For The Investor.