Lies Your Broker Tells You

Thomas D. Saler became disenchanted with the stock-brokerage industry when he concluded that it exists for the enrichment of its members and not for the sake of servicing its clientele. He thinks the main problem is that the brokers are not investment counselors but salesmen who are under such pressure to generate commissions that they have neither time nor inclination to become knowledgeable about the merchandise they sell. In the first half of his book, Saler includes examples of how brokers mislead clients along with anecdotes about outright swindles. The most common faults, according to Saler, are steering clients into investments that are advantageous to the broker and “churning” (persuading clients to make unnecessary purchases and sales in order to generate commissions). Saler has a poor opinion of the research facilities that most large brokerage houses offer as a means of enhancing their images and justifying their high commissions. He says the information is frequently unreliable, which is why brokerage firms, unlike mutual funds and private money managers, are unwilling to discuss their performance.

In the second half of his book, Saler suggests alternative ways of investing in securities. He gives special attention to no-load and low-load mutual funds--that is, funds which charge no sales fee or a small fee (4.75 percent or less). He names ten top-performing mutual funds which have shown gains of from 456 percent to 1,029 percent between 1979 and 1988. He also gives specific recommendations about private money managers and advisory newsletters.

Saler confirms many seasoned investors’ worst suspicions and voices a stern caveat to novices. His whole thesis is succinctly summarized in one brief paragraph: “Professional salesmen masquerading as investment professionals. Relying on research that is too inaccurate to be useful. Laboring under a morass of conflicts of interest and holding enough power to deeply harm. That’s the American brokerage industry.”