The Atlantic Monthly's Jeffrey Goldberg wrote an article this month exploring his options as a small-time retirement investor, "Why I Fired My Broker". He fired his broker, it turns out, because his broker never called him back. Fine reason, if you ask me. But he has many more reasons why everyone should fire their broker.
1. Your broker likely doesn't want you as a client.
Goldberg asked Larry Gellman, a very successful financial advisor, who described a dire situation for anyone with under $10 million to invest. Gellman said, "People like you are in a sort of purgatory because no one would ever come out and tell you that he doesn't want your business anymore. You had to figure that out by yourself."
Goldberg also asked Robert Soros (George's son and deputy chairman of the Soros fund) about his unresponsive financial advisor. Soros reports, "They were never your advisers. Do not for a moment think that a brokerage firm is your friend."
Ouch. (If your broker actually is your friend, maybe you could take him or her out to lunch. Be gentle.)
2.Your broker probably doesn't think you can make your money back.
Goldberg translates a video by Merril Lynch's top investment strategist: "You’re not going to make money on your investments in the next 10
years, or 15, or 20, so you should stop worrying about your portfolio
and go to the movies like everyone else."
Of course, not everyone feels this way, especially if they have money in the stock market, but no one can predict how many years you'll need to regain the lost ground. If you've seen 20,30 or 40% loss in a matter of one or two years, do you have the patience to wait for another 10, 15, 20 years?
3. Your broker won't allow you to buy real estate.
At a cocktail party, Goldberg asks another successful investor about advice for the little guy. Bill Ackman said, in part, "Buy a house. I think it’s a great time to buy a house....
It’s one of the best investments you could make."
As we all know, real estate is pretty cheap right now. Loans are hard to find, and more and more Americans have to rent. Your IRA can be the landlord and your IRA can sell the real estate when you decide to sell, not when your broker recommends selling.
4. You can't get a loan on stocks and bonds.
Your broker can't direct you to a bank which will lend your IRA money to double your buying power. Such banks do not exist. Banks in general have not exhibited good judgement lately, but a non-recourse loan is always a good decision for the bank and an excellent decision for your retirement.
5.Your broker earns a commission on what you buy.
Many brokerage firms have products they call self-directed, but the only choice you have is among their products. Not much of a choice, if you're not a stock broker.
6. Your broker likely earns a commission on your transactions, motivating him or her to promote transactions.
Yes, if you pay excellent attention to the market, know the companies and the "rules", and wish to gamble on the uncontrolled activity, of course you should buy and sell frequently. But I prefer blackjack.
It's not your broker's fault. If your broker does call you back, tell them about self-directed IRAs. We'd be glad to get them started in a new direction.