What's Still Great

The Essential Broker

There are good reasons to ignore Arthur Levitt's advice.

By 10.26.09

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A few weeks ago, I found myself at the magnificent Broadmoor resort in Colorado Springs. I was moderating a panel of three former SEC chairmen about the economy. It was a fascinating session, as you would expect it would be. But one comment in particular caught me up short.

An audience member asked the men their investment advice. Arthur Levitt, longest serving Chair of the SEC, and an honored graduate of Williams College, said simply, "Fire your broker and just go with index funds."

Now, I, your humble servant, am completely on board with Chairman Levitt about index funds. I have long since abandoned hope of beating the market. On those rare occasions when I try, the results are usually bad. The reason is simple: everything I can find out about a stock is already in the price and the only things I do not know -- namely the whole future of the market, the economy, and the stock -- can just as readily hurt me as help me. So, I just float with the boat -- which also has its limits because the index is made up of stocks as to which everything is also already known.

But I do have brokers and I am not going to get rid of them and I will tell you why. I have a broker at Merrill Lynch named Kevin Hanley, who works with another broker named Jerry Au. Then, at Fidelity, I have a broker named Phil DeMuth, who is also a very close friend. (His nephew, Chris DeMuth, Jr., runs a hedge fund in which I am also a small investor.)

Why do I have brokers, especially when the fees to the brokers at Merrill are not negligible?

First, because money is a scary subject even for me, who has been at it for a long time. I do not want to be alone out there. I want to have someone to discuss things with, to cry on his shoulder, and to exult when things go well. I am extremely certain by now that they do not know much more than I do, but I am also certain that I need company.

Second, I am the world's slobbiest human about record keeping. I count on Kevin, Jerry, and Phil to keep my records much better than I can. When income tax time rolls around -- truly a non-negligible expense -- I find I need for them to find data on interest, dividends, and capital transactions that I could not lay hands on in a million years.

Third, and this is especially true now that Merrill is part of Bank of America, I find that my brokers there can get things done for me that I cannot get done elsewhere.

Example: I am buying yet another condo in North Idaho. It is tough to get mortgages these days and I mean really tough. Banks give me the run around and waste my time if I just stroll in the door and fill out forms.

But my guys at ML stay on the case and get things done. They don't take "no" for an answer. They work and work and call in favors until they can get the darned thing done. I could not do that with an automated system. I bank at a small private bank that does not do home loans. So my peeps at Merrill are really my guys to make sure I get that condo.

Another big thing.... When I die, as I surely must, I know I can count on them and Phil to help my wife and son with the immense amount of paperwork that will be involved. In a word, I need them to make sense of a cluttered and crowded and finite life. In a world where I have fewer friends every year, they are friends indeed. Maybe Chairman Levitt is well organized enough to get by without a broker, but he probably has a family office, which I don't. (Or if I do, the people who work in it don't know an ETF from a toaster.) For a guy like me, a broker is essential.

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About the Author

Ben Stein is a writer, actor, economist, and lawyer living in Beverly Hills and Malibu. He writes "Ben Stein's Diary" for every issue of The American Spectator.