I have brokerage accounts for me and a couple of other people at three places:
- A very large, well-known “full-service” broker I’ve been using ever since I bought 100 shares of Leisure Dynamics at 8 and watched it go to zero – my own fault, 25 years ago, like almost all my other mistakes since. My broker is an actual person whom I love and admire. Love his wife. Love his kids. Proud that I’ve helped put his kids through the same high school I went to. Can’t wait until they finish college.
- Even with the negotiated rates I get, it’s just ridiculous to be paying so much for the kind of self-directed trading I do. Yes, they now have an Internet site – I can look at my portfolio. But no, you can’t place orders on it, you have to do it the old-fashioned way. And during business hours.
- Furthermore, because they are full service, they require that I fax a special little letter every time I buy a really dopey low-priced (or even just low-priced) security. This is to verify I was not solicited by the firm to buy this dumb stock – and to protect the firm lest, after 25 years of being a client, I turn around and claim to be a naïve investor and sue them. I am thinking of suing them, but only for the inconvenience of having to fill out this silly form. Bad enough I have to do it once. But every time I buy a new lot of shares in the same security, I have to fill it out and fax it in. Want another 1,000 shares? Fine, but take a few minutes to send us another form saying you still pledge this stock was your own dumb idea, not ours. I offered to sign a blanket release once and for all, but full-service firms like this one have full-service lawyers and full-service procedures they are not about to change for the convenience of a customer.
- A very large, well-known discount broker I’ve been with almost from the beginning. These are fine folks who, once upon a time, charged very competitive rates. Indeed, under pressure from the discounters, they have fairly recently offered a “deep-discount” Internet trading alternative of their own. It’s $19.95 a trade for limit orders, versus Ameritrade’s $13. But being enormously rich — earning more in a year than someone like Bill Gates earns in a minute (I think) — I do not trifle over such differences. What’s an extra $6.95 to a guy like me?
- A deep-discount broker that charges $8 a trade for Internet-placed market orders, $13 a trade for limit orders, and for which I write an (erratic, eclectic) daily column. I won’t say which deep discounter it is, lest I appear to be endorsing it. But I will say that I marvel at the ease and efficiency — and low cost — of trading with it. I can even get a human on the phone without difficulty when I have a question, can buy the same obscure foreign stocks I do at my full-service firm (albeit not over the Internet, and at slightly higher rates), and I don’t have to fill out any stupid forms when I want to buy a low-priced stock.
And so it was with that background that I logged on to the Internet site of the mid-priced of these three — let’s call them Schmedelity — and placed an order to buy 50,000 shares of a dopey little stock at thirteen-sixteenths.
Now let me very quickly say that this was a grander-sounding order than I usually place. Even at under a buck, it was still a $40,000 trade. (Like buying 300 shares of America Online.) And it wasn’t my money. It was for my mom’s IRA.
Should I have switched her IRA from Schmedelity to a firm that charges just $13 for an Internet limit order rather than $19.95 (plus some fine print)? Well, possibly, but you know that in addition to being enormously rich, my time is extremely valuable (there’s Seinfeld to watch every night at 11, there’s the bed to make in the morning …) and transferring accounts, especially if you need to furnish copies of the Trust Agreement or whatever (where on earth did we put that?), can be a drag.
So without much thinking about it, in I put the order, which wound up being executed over two days — 21,200 shares at my limit price the first day, 28,800 shares the next. Done deal.
The confirms came from my discount broker, duly noting “$5 charge for limit/stop orders included” (a “market” order would have been just $14.95, not $19.95) and duly noting, “online discount applied” (they charge more if you deal with a human), and wasn’t I surprised to see the two confirms total $999.90?
I called Schmedelity and was told by quite a sympathetic rep that, yes, actually, this was correct — it’s $14.95 a trade plus $5 for limit orders, but there’s a 2-cent-a-share add-on for orders above 1,000 shares.
Now, in the haziest way I sort of remembered something like that, when he mentioned it, though I couldn’t remember whether I thought it applied to Internet orders or just the old-fashioned human kind. But we agreed that this was, in the current instance, ridiculous. It’s not as if they had to find these 50,000 shares on the Kuala Lumpur stock exchange and manually count each of 50,000 certificates. It was as easy to buy 50,000 shares of this American-Stock-Exchange-traded stock as, well, pressing a couple of buttons. And the dollar volume of this immense order was, as I say, about the same as buying 1,000 shares of a $40 stock — for which Schmedelity would have charged $19.95. Indeed, my full-service broker would have grumbling charged “only” a penny a share for this 50,000-share order — half as much as Schmedelity. And Ameritrade would have charged $26, not $999.90. (It would have been $13 had the order been completed over a single day; but split over two days, $26.)
I pointed this out in the nicest way, acknowledging clearly and firmly that it had been I, not Schmedelity, who made an error — that I had agreed to whatever I had agreed to and was not suggesting they had to give me a break, just that, after 15 years, and under the circumstances, I hoped they would give me a break.
What did I have in mind, asked the sympathetic rep?
“Well,” I said, “I’d feel great if you’d charge me $100,” which is still four times what I’d have paid at Ameritrade, but who cares.
He totally understood but said his own discretion on this (I had reached one of the weekend reps) was limited to $150, so he could basically only knock it down from $1,000 to $850. He said he thought I should call back during the week, because my account was in one of the “premium” groups, and they would likely have a lot more discretion.
Back I went to the phones Monday, explaining the situation and again taking responsibility for having goofed … though noting that it sure couldn’t hurt, if they were looking out for customers’ interests, to flash a little “warning” screen when an Internet commission was going to be 70 times the $14.95 that sticks in many a mind, just to be sure the customer is aware of the deal.
He was friendly and asked my bottom line. My bottom line, I said, was $500. I had hoped for $100. But if he’d do it for the same penny a share my full-service broker would have charged, I’d pay 20 times what Ameritrade would have charged and just learn my lesson.
He said his discretion was only $200, but that if he applied it to each day’s separate trade, that would knock it down from $1,000 to $600.
I said I didn’t want to seem unreasonable, but it just rubbed me wrong to do a deep-discount Internet trade at more than my full-service broker would have charged. (At least I hadn’t had to fill out the annoying little form.) Could he ask his supervisor? Surely they didn’t want to lose three long-standing accounts over $100.
He came back, having gone to his supervisor’s supervisor, (Don’t you love it when you know for sure you’ve won — even if, in this case, “winning” meant paying 20 times what I might have elsewhere?) — and told me, “Well, my supervisor’s supervisor says that since we are owed $1,000 on this and you wanted to pay $500, would it be satisfactory to split the difference; i.e., $750?”
“But you just offered to knock it down to $600, and I said no. Why would I be satisfied with $750?”
Well, he said, he was sorry, but that’s the best they would do.
So I said I would wait a few days and then, if no one reconsidered and they really were willing to lose the accounts over this, so be it.
And so it was.
Yes, if I had pushed it far enough, or called a classmate who happens to run Schmedelity, I doubtless could have gotten my way. But that’s cheating. Maybe if it had been a $20,000 commission I would have done that (though the commission is actually limited to a ceiling of 5% of the trade, so on a $40,000 trade, the most Schmedelity charges is $2,000 instead of Ameritrade’s $13). But to save a few hundred bucks, it’s easier just to thank them for 15 years good service and move on.
For those who like stories to have a painfully obvious “moral,” there would seem to be two morals to this story: (1) Read the fine print. (2) Just because one brokerage firm charges 10 or 20 or even 70 times as much as another doesn’t mean the trades it does for you are even a jot better or more convenient.
It’s like a scarf. To my mock horror, Charles and I just bought my mom a $300 Hermes scarf last week. Crazy, but it was her birthday, she’s a great mom (please don’t tell her what it cost), and Hermes is a big deal. But for pure scarfness — keeping your hair warm, or whatever scarves are supposed to do — $15 should really suffice. Somehow, in the case of this $40,000 trade, I found myself buying a $26 scarf for $1,000. Oy.
Quote of the Day
In 1800, 75% of [an American's] working man's expenditures went for food alone. By 1850, that had dropped to 50%. Today it is a little more than 11%.~The Wall Street Journal, September 20, 1996
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