Should You Have Several Brokerage Accounts?

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Should You Have Several Brokerage Accounts?

Some customers have accounts with two or three different brokers. In most cases such a practice is silly, since your account won't be as important to any one broker. You may also receive conflicting advice, which will be confusing and costly. Money is made in the stock market by concentrating, not scattering. The same should go for your brokerage account. Concentrate your activity with the best stockbroker you can find. If this doesn't work well after a year or two, change and find another broker.

If you are more accomplished and make your own buy-and-sell decisions, you might want to consider a discount broker. You could save as much as 50% on the cost of commissions. Discount brokerage firms have grown and increased their share of the retail securities business ever since the advent of negotiated commissions in May 1975.

If you don't know the name or location of a stock brokerage firm that is a member of the New York Stock Exchange, look in the yellow pages of your local telephone book. The reason I suggest a New York Stock Exchange firm is that NYSE membership in the securities industry is a little like the Good Housekeeping seal of approval. It certainly doesn't guarantee you will make money; however, you will be dealing with a more substantial organization. Members usually pay several hundred thousand dollars or much more just to buy a seat on the New York Stock Exchange.

Stock exchange firms also have many rules and regulations to which they must adhere. And they are subject to surprise audits and annual examinations from the stock exchange.

Conversely, some firms that are only members of the NASD, the National Association of Securities Dealers, and perhaps a local or regional exchange, may have too easily gained entrance into the securities business. They may not be backed up with as substantial a capital base.

If you've never opened an account with a brokerage firm, don't be timid or reluctant to visit one. It's simple and easy, just like opening an account with your local bank or savings and loan. You will have to fill out and sign new account papers before you will be able to buy or sell any stock. You may open a single account or, if you're married, you may want to open a joint account. The broker will also ask for credit references,
such as your bank. All brokerage firms have a regular commission schedule which they should be able to show you. The commission generally averages from 1% to 2% to buy or sell a stock.

When you buy or sell stock, you will receive a confirmation in the mail (a small slip of paper) which will show what stock you bought or  sold, the price paid or received, the commission paid, and the total dollar amount you owe or will receive if you sold a stock. It will also show the settlement date by which the transaction must be settled.

It's best to pay these bills immediately on receipt since they will be due in a few days. Stock certificates must be delivered to your broker properly endorsed without delay when you wish to sell a stock, otherwise the transaction can't be settled on time. Sometimes stock powers (legal endorsements) can be signed and mailed separately to your broker.

It is usually more convenient for both you and the NYSE firm to hold your stock certificates in street name (the brokerage company name), where they are held in safekeeping for you by the brokerage firm. All accounts are insured to $500,000 by the Securities Investor Protection Corporation, and additional insurance is carried by most firms. Certificates are kept in a vault, so they should be safer than if you try to take care of them yourself.