The cynics among us might conclude that tennis and golf have a lot to do with hundreds of securities brokers holding their annual convention at the Boca Raton Resort and Club in south Florida.
And they do. Tennis and golf tournaments were among the “optional events” at the recent Securities Industry Association convention, together with early-morning breakfast talks on national tax policy and budget issues, the political outlook and the Internet.
But make no mistake about it: The leadership of the association, which represents more than 760 securities firms in North America, was dead serious about the theme of this year’s convention, “a new dialogue with investors.”
“We have a historic opportunity to renew our nation’s focus on savings and investment,” said John L. Steffens, Merrill Lynch executive vice president and SIA chairman, in his opening speech. “What’s good for the investor,” he told reporters later, “is good for the industry.”
OK, the cynics among us will say the basic business of brokers is to sell securities, not promote savings. Even David Bradford, a Princeton University professor who spoke at the first of the optional breakfast meetings, minced no words. “Encouraging savings is good,” he told his audience, “but it seems to me what you want to do is encourage transactions.”
So be it. But for a number of reasons, we have a win-win situation here. The brokerage industry has no choice but to work together with investors and savers–if it wants to survive.
Consider the findings of an investor attitude survey released by the SIA. The one most written up in the press and talked about on financial TV said investors are happy with their brokers, but believe dishonesty, greed and high commissions and fees are problems in the industry.
Now let’s look at other numbers. The research firm of Yankalovich Partners interviewed 1,505 investors with total household income of at least $50,000, and total investments, not counting their home, of $100,000 or more. Of the 1,505, 882 had a brokerage account.
That means 623 did not. Two of five investors don’t need a broker–not surprising, considering the proliferation of direct-marketed no-load and low-load mutual funds and annuities, as well as employer-sponsored 401(k) plans.
And more people get financial advice from friends, mutual fund brochures and magazines than they do from financial planners, the survey found.
Even those who use brokers are getting pretty independent. The more confident investors are about their own abilities, the survey found, the more likely they are to use a discount broker instead of a full-service firm.
Not mentioned in the survey but clearly on brokers’ minds is also the growth in the number of companies that sell their stock directly to the public, with no broker or middleman, even for the first share.
There are 80 or so now. In addition, about 900 companies let investors buy shares directly through their dividend reinvestment plans, or DRIPs, once they are shareholders of record, usually by owning just one share.
What the industry needs to do, and the leadership agrees, is to go all out to educate the American public on the advantages of long-term investing. Paula Gavin, chairperson of the New York Stock Exchange’s individual investor advisory committee, said 51 million Americans invest in securities, either directly or through mutual funds. But among them, 42 percent have less than $10,000 invested, and all the money is in a single stock, typically a very risky practice.
Where does this lead us? The big trend in the securities industry today is away from “pushing” stocks, and into drawing up a complete financial plan for the client. Merrill Lynch, for example, expects to write about 130,000 plans this year, Steffens said. That means the broker will take the time to really get to know the client, understand his needs and risk tolerance, as well as offer basic guidance on savings and investment strategies. An educated client, Steffens said, is the best client.
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Humberto Cruz welcomes questions and comments from readers. Although he cannot respond to each one individually, he will answer questions of general interest in his column. Write to Mr. Cruz c/o Tribune Media Services, 435 N. Michigan Ave., Suite 1400, Chicago, Ill. 60611. Send e-mail messages to: HCruz5040aol.com.
