I am writing to rebut the June 7 op-ed article by David Ignatius, "No More Portfolio-Churning Brokers," and to defend the good name of financial consultants. It has become in vogue to depict brokers as faceless, account-churning beasts who do nothing more than separate their clients from their wallets by charging exorbitant commissions. Allow me to put a face on this "beast." Most brokers care deeply about their clients' financial well-being and do everything in their power to ensure it.
Mr. Ignatius comments, "Too often brokers simply churned customers' accounts -- moving them in and out of stocks and making nice commissions on each trade, regardless of whether the customer benefited in the long term." I regret the writer has had such an unfortunate experience, but he should recognize the fundamental flaw in his argument. Clearly, it is in a broker's best interest to increase a client's assets as much as he or she safely can.
Let's apply a simple equation: Broker A churns his client's account. The client loses money and transfers his account to a discount broker.
Broker B manages his client's account by using his expertise gained over years in the industry. On many occasions, Broker B talks his client out of irrational investment decisions. Over time the client increases his net worth and continues to invest more assets with Broker B. In addition, the client gives Broker B many referrals, which, in turn, cultivates new business.
Quod erat demonstradum: It simply doesn't make good business sense for a broker to churn his clients' accounts.
STEPHEN F. OWEN III