What is your take on Advisory Brokers?


Q. What is your take on Advisory Brokers?

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A: In a word. Beware. Number one it's a conflict of interests. Their business model is making money from commission, no doubt they charge some silly amount like 20-30bps (0.3%) for each 'advisory' trade as well. The skill to trading is in the waiting for the right opportunity. Number two if they were really good, they'd be either trading for themselves, trading prop or working at an Investment bank, not at a retail CFD brokerage playing about with 10-20k here and there. I will narrate two stories from two chaps I've received over the years -:

From Michael - I just wanted to share my experience since I had really bad experience with Blue Index (update 2011: ironically Blue Index is now defunct!). I opened a small account with them and used their advisory service to trade there recommended stocks. I have been with them for over 3 months during which period my account was only up for one day on a tiny profit. It was constantly at a loss till they completely wiped out the account. As the account looked really bad I have been advised to put some more money into the account for a 'very good trading opportunity I should not miss and which could take my account back on track'. I think you can guess the rest. I lost all. And they made nearly £10k from me. I have tried other advisory services as well. All my accounts were wiped following their recommendations. So I came to conclusion that they are there to make money for them self not for their customers.

On the top of everything I recieved a phone call today from Blue Index telling me how sorry they were that things didn't work out for me but they have a great recommendation on a stock that I should have not missed. So silly me I put some more money so I can open this high potential position (how ironic and dumb of me) I lost £500 in a matter of hours. I just can't believe that people could go so down just to earn a few extra pounds from someone who lost his account on their recommendation.

I am so amazed...I just had to share my experience...My advice is DON'T go with advisory brokers.... it is waste of time and a lot of money... somebody is making money out of it but that is NOT you...Wish you success and good luck.

The vast majority of people have had a similar experience with advisory CFD brokers - good literature, professional approach and sh*t stock pickers. The thing is nobody cares more about your money than yourself. If want to win the grand national - go to an advisory broker and odds are that they'll pick you the three legged horse and if you want to win the lottery - go to a CFD brokerage company and they'll select the machine that only prints five numbers!!

Note: This doesn't mean that there aren't good advisory stockbrokers around - the above answer is intended mainly as a warning on CFD advisory brokers who tend to maximise their commissions by excessively trading in a client's account (this practice is defined as 'churning', aka as 'hurn and burn', 'twisting' and 'overtrading'). Unfortunately in such cases it is often the case that such clients are made sign an agreement giving the CFD broker permission to regularly change their investments so churning (which as an activity violates Fair Practice Rules) is difficult to prove. Also, beware that some brokers use Pareto's 80-20 Rule when dealing with clients - which rule states that 80% of an advisors business comes from the top 20% of his clientele. I have personally been present in meetings where top producing advisors tell their counter-parts that they do not allow clients to use more than 15 minutes of their time unless they fall into the top 20%. They focus more energy on those top 20% than the bottom 80%. However, this is not right and all clients should be treated equally - after all the individual that invests $1000 worked just as hard for that $1000 as did the person who invested $1,000,000. Favoritism and financial prejudice should not exist in the work place but unfortunately where money is involved favoritism is the order of the day.

Lastly be wary of free dinner invitations by brokers - never sign anything without taking ample time to consider the investment and read all documentation thoroughly. The sooner the reader realises that there are indeed no free lunches in the business world, the better it is. A small fee for expert advice can avoid a lot of financial grief. It is also sad, but true. An investors or trader often times is not willing to pay for expert advice. Because of the scale of operations, a truly independent financial advisor is able to distribute his or her homework for a pittance of the price, what the advice is actually worth. The reason being, that the analyst needs to do the research only once, and can distribute it to several clients, depending on each player's trading style and temperament.

When it comes to stock broker advisory services each individual has specific needs and different attitudes to risk. Key issues to consider with advisory-assisted dealing services in such instances are cost (you should expect to pay around 1% a year), timeframes (the longer the better as history shows that the longer you stay invested the better your chances of making a return), the range of investments a broker can trade (can the broker deal in overseas shares?), a good telephone service where calls are responded promptly, timely reporting and the availability of research.

Q. Are you saying that asking stockbrokers for advice is a bad idea?


I thought the role of stockbrokers was to provide advice. Obviously you could get full service brokers to manage a portfolio for you, but I wouldn't bother with that, would just want a hand with some long term stock picks.

A: First, let's not generalise like in any industry, there are good ones and bad ones - do you know how to tell the difference?

My understanding of stockbrokers is that most are more 'salesman' than the financial planners in the bank. You should look for quality advice from unbiased, fee for service only and with unlimited product offering financial planners.

So when it comes to advisors' take on stocks you really have to 'treat all advice as a poisoned chalis'. (quote from Marcus Padley). It sounds mean, but just have a look at some of the free advice out there and watch what happens.

Basically, you have to form your own ideas on what may happen from multiple sources and assume a few of them will be wrong as well. Keep learning to understand how it works in your own mind. I think most people realise soon how the markets work, its basic business inputs and outputs at the end of the day. That's why most people eschew advice and simply learn to monitor the relevant data and indices that affects that stock. On the simpliest level, for instance the oil price will affect oil stocks...etc. So you have to learn to interpret the relevant data yourself. But there's no guarantees so sometimes the market does things which seem inconsistent with the rest of the data.

Also most of the free buy advice is given 2 weeks after the event, when the market has already risen a lot. In the advisers defence, it is hard to put timelines on advice, the advice may be valid only for that moment, then the next day it may be totally inappropriate, so it's almost impossible to give advice unless you do it continuously to someone. If the price goes up too high, you have to know that yourself, because then it will go down quickly when people start selling to take momentary profits, so it's all in the timing. The advisor may not be able to tell everyone, sell right now at such and such a price. So as soon as you advise someone, you basically have to babysit them to tell them when to sell and buy it back again for instance. You really have to learn this for yourself.

In any case, there is plenty of good sound advice out there, even if it simply expands your knowledge on how it all works, it's worthwhile to hear even if you don't act on it.

Lastly a note on Full service brokers. Having been in the industry I have this to say...Brokers want to deal with ten clients with 5 million each. Not 1000 clients with 50 K each. If you have 50k to spend....you'll end up with some guy who's ink is barely dry on their Commerce degree, who hasn't seen a corrective market since he got out of University and probably does not really know how to handle the market we have right now....so he'll follow the company line, which means following what the analyst says...let's hope his commerce degree is dry eh? . You want some old fart who's been around since '87 to watch over your portfolio...but you won't be interesting to him until you have a couple of million floating around.

Q. I was called by lauruscap.com re-shares in MBSM offered at $0.5 and foolishly or not I purchased them.

A: I have received a share certificate from Mobilestream Oil & Gas Company to whom I paid the money. They have responded to me both in writing and via email the contact is Angie Cambridge email info@mobilestreamoil.com.

The following note was written on the rear of the certificate,

The shares represented by this certificate have not been registered under the securities Act of 1933, as amended, or applicable State Securities Laws, and may not be sold, transferred, pledged or hypothecated without either:

  1. Registration under the securities Act of 1933, as amended, or applicable State Securities Laws, or,
  2. Submission to the Corporation of an opinion of counsel, satisfactory to the corporation that said shares and the transfer thereof are exempt from the registration requirements of the securities Act of 1933 and applicable State securities laws.

Could you tell me what that means? Hope I have not bought a pig in a poke as the current value on Bloomberg is in excess of $4 dollars.

If you were cold called regarding the investment then sorry to tell you that there's a 99% chance that your money has been stolen from you. And there's little you can do about it because you're dealing with scammers of the highest calibre. They will have an answer for every question you might ask them.

Financial advisor won't be able to help you on this one though mate. You will have to wait at least a full 12 months before the selling restriction can be lifted. Normal practice is that after 12 months you will have to pay between $200-$500 to have the restriction lifted, that is providing Mobilestream are up to date with all their fillings with the SEC, then you will be able to sell within a time frame of 3 months, if the stock isn't sold within this time frame the restriction is put back on for another 12 months. Regulation S rule 144 shares only becomes common stock after 24 months. As Mobilestream have not filed anything with the SEC yet, you will probably have to wait the full two years before you can sell the shares. More information on the Cold Colling Offshore Brokers is available here Check the Glossary for More information on Regulation S and Form S-8. Sorry if this is bad new.

Q. Do you know anyone good who can invest my money for me?


Do you offer a managed account service?

A: Sorry but I don't offer a managed service as that's not really my business. I was in the brokerage industry once and we used to manage some money for clients but it was a real headache because whenever you had a bad trade or a losing run they all used to whine too much even if you made them good money over the year.

My view on investing (not trading which is a completely different beast) is different to most of the brokers anyway because they want to do things short term and generate lots of commission.

Personally, I think that taking a long term lookout is best (6 months to 4-5 years), then if you catch one of the big trends all you have to do is sit back, not worrying about what the stock has done today, is it up/down etc.

Taking this perspective 99% of the time today's stockmarket action is irrelevant.

It's been a few years since I left the financial markets so don't know of anyone I can recommend. In my opinion it would be hard to find somebody because a) most of them will want to short term trade your money generating commissions and b) finding money makers is hard enough anyway!

 ...Continues here - Longer Term Spread Bets, Market Research & More


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