Here's a better way of dealing with a stockbroker: Pay a regular fee instead of a sales commission on every trade.
Under the commission system, brokers and their clients face a fundamental conflict of interest. The brokers can't keep their jobs or send their kids to college unless they sell a certain number of high-commission products. Also, they have to prod their customers into frequent trades.
The suspicion and abuse that this system breeds is well-known to the industry. But there's not much pressure to address the issue. So far, only monied customers have a way out.
Their escape is the ''wrap account.'' With a wrap, the broker quits trying to manage your account -- and you do, too. Instead, you jointly pick a money manager who will do the investing for you.
You pay a flat fee, which the broker and the manager split. On stock portfolios, it's generally 3 percent of assets up to $500,000, and less for larger sums. Bond portfolios might cost 1.25 percent. You don't pay any commissions on trades, and there should be no dealer markups on the securities you buy.
If your account grows, your broker makes more money; if it shrinks he or she makes less. This arrangement puts you and the broker on the same side of the table. You both are monitoring the manager, to achieve the performance that meets your needs.
No-load (no sales charge) mutual funds are much cheaper than wrap accounts. There, you can get top securities management for 1 percent of assets or less. But for people who like to have individual portfolios, wrap accounts make sense.
Even with wraps, there is still one possible conflict of interest. Your broker could urge you toward a stock portfolio rather than a less-risky bond portfolio, because stocks should grow faster and generate larger fees. But you also bear a responsibility for what you buy.
Many of the national and major regional firms now have some sort of wrap account. Typical minimum: $100,000. Shearson Lehman Hutton offers a Choice Advisor program with a $50,000 minimum that has over $400 million now under management. Its money managers all have a Shearson affiliation. Shearson's Select Manager plan (running more than $2 billion) has unaffiliated managers and requires $100,000.
When you join one of these programs, you and your broker work out your financial objectives and tolerance for risk. You then choose portfolio managers who specialize in your kind of investing -- aggressive stocks, income stocks, taxable bonds, tax-exempts, and so on.
The brokerage firm tracks how well these managers run your money. You get quarterly reports on your percentage gains or losses. If your manager stumbles, it costs you nothing extra to switch, says Stephen Thoma, of Merrill Lynch's wrap program, Merrill Lynch Consults.
At big brokerage firms, you can tap into money managers who normally have minimums of $1 million and up. Regional houses simply may help you find appropriate managers who already offer $100,000 minimums. At St. Louis-based A.G. Edwards, you pay your broker 2 percent and the manager 1 percent.
''Long term, the industry would be better off if all clients could consult with stockbrokers on a fee-for-service basis,'' says Shearson's Dennis Bertrum, a senior vice president. Shearson is working on more fee-based products, such as trust accounts, to serve the boomer generation as it moves into its flushest years.
But smaller investors who buy securities still face brokers steeped in conflicts of interest. If the well-heeled are turning to money managers, maybe you should, too -- in a mutual fund.