Your Broker As A Cheat (Part 15)

The Simpson's invited their new neighbors the Parkers over to dinner. During dinner Mr Simpson asked Mr Parker what he did for a living.4 year old Billy Parker jumped in and said“Daddy is a fisherman!"To which Mrs Parker replied" Billy why do say that? Your daddy is a stock broker not a fisherman.""No Mom. Every time we visit dad at work and he hangs up the phone he laughs, rubs his hands together and says I just caught another fish.

Your primary task as an investor is to inquire whether your brokers’ office is a branch office or a franchisee.  If you are a customer at a branch office, you could be in serious trouble.

Most nationwide brokers open a branch office in cities and appoint a branch manager along with certain staff, equipment etc.  The fixed costs are loaded now and it is you the customer who will now how to ensure that all this paraphernalia is paid off.

The Branch manager has daily targets. Daily targets.  There is no exception, to my knowledge

Below are the responsibilities of the Branch manager which does not include the obvious ones of managing the branch etc

Reach daily brokerage targets

Ensure that specific shares are bought by customers

I will explain point 2 first.  A brokerage house does own certain shares in companies where they have taken a stake.  This is typically done to increase the stock price and help the company look good on the bourses.  The stock price soon reaches a level where the promoters are ready to sell and make a killing.  The promoters first sell their shares off in the accounts of all the dubious people they have arranged for themselves.  This happens while the stock is still rising in price.

The next stage is set and this is when the brokerage house directs all their branch managers that all the customers must own this script.  This dictate actually comes in the form of “advice” from Vice Presidents.  The branch manager will ask you to buy some small qty.  The customer soon observes that the price has increased by 5% or so.  This is when the customer feels like a typical idiot and rushes in to buy more of the stock.

The brokerage house then sets targets for each branch and is actually now offloading its own stock.  The price soon recedes and all interest is lost in this wonderful (sic) stock.  The customer is now left with shares and no money and will probably wait for a decade till the stock regains its past glory.

Point one is fairly simple. Daily brokerage must exceed daily expenses.  Here the branch manager will ensure daily trades, future and options transactions, short term trading, hourly calls, investment ideas and what not.

Do inquire if your account is at a branch office.  If so, do be suspicious of the calls you get !

© Nitesh Kotecha