How to find a good - no, the right - stockbroker for your investments

HOW does an investor find the right stockbroker? It's become a red-hot question as people who don't usually pay attention to the stock market keep close watch on the Dow Jones industrial average.

A recent New York Stock Exchange survey shows that about 42 million Americans own stock, and about 40 percent of them have incomes less than $25,000. While many of these people own that stock through mutual funds or pensions, the small investor is definitely alive and well, even in a marketplace dominated by program trading and institutional investors.

If you, too, have finally decided to leave the sidelines and put some of that hard-earned money into the market, the next important decision is to choose the right broker.

But before picking up the phone, sit down and decide just what your investment needs and objectives really are. Are you interested in investing for steady income or quick profits? What about long-term growth versus tax savings? Talking with your banker or accountant could help pin down these issues.

You'll want to decide if, based on income, it's worthwhile to take some risks in exchange for potentially bigger rewards in the future - or less risk for smaller returns. The only sure thing is that there is no free lunch - the higher the return expected from the investment, the greater the risk. Can you afford to lose the money you're planning to invest? That's a crucial question to know before talking to any broker.

When a potential investor has some idea about how much money he or she wants to invest, and how much they could comfortably lose, it's time to find a broker. The first choice is between a full-commission broker or a discount broker. Transaction costs are usually lower for a discount broker, but one expects a full-commission or full-service broker to offer professional advice and counseling for the commission.

For people who plan to make all of their own investment decisions and simply need a broker to execute trades, a discount broker is probably the best choice. Most discount brokers are paid a salary by their firm, not commissions on the amount of trading they do.

One way, and perhaps the best way, to cull the right broker from the multitude is to ask people who have dealt with brokers - friends, an attorney, business colleagues and others - for names of brokers they trust.

Of course, the brokers that friends recommend will have to be sorted according to your own criteria.

The aim should be not just to find a marketwise broker, but also to find the man or woman whose investing philosophy fits your own - who listens and really understands your investment needs.

A broker should not be offering only his or her own ideas, but should be a a sounding board for the customer's own investing ideas and goals.

``The biggest problem with brokers and clients is communication,'' says Jack R. Demaree, St. Louis branch manager of Thomson McKinnon Securities. ``A lot of brokers are just too impatient - I wouldn't want to deal with someone that wouldn't be willing to give me all the time in the world.''

Often, when a new investor decides to interview stockbrokers, he may feel intimidated by the fancy office, the arcane terminology, complex strategies, or even the slick sales pitch.

But a good broker - the right broker - will slow down, no matter how busy he or she is, to give clients the time they need - to explain the complexities and help clients make intelligent investment decisions.

``With less regulation of financial markets and the aggressive promotion of all kinds of complicated and often baffling investments, the average investor needs the help of people he or she can rely on in making investment decisions,'' says F. Daniel Bell, III, president of the North American Securities Administrators Association Inc.

Mr. Bell's organization, which represents 65 state and provincial securities regulators in the United States, Canada, and Mexico, works in conjunction with the Council of Better Business Bureaus, Inc. to provide a helpful publication for investors.

The publication, which provides more detail for finding brokers and investment pitfalls, is called ``Investor Alert.'' It is available from local Better Business Bureaus and securities administrators.

It's also a good idea to ask brokerage firms for brochures and other information that descibe the investment options and services provided by the firm. Such information will include commission schedules that show how much the firm charges based on number of shares and price per share.

At this point, you will need to weigh the options to decide which companies and brokers offer the services, products, investment style, and rates that meet your needs.

Some investment experts say having more than one broker is probably not a bad idea, since a client can bounce the same investment ideas off of them to reach a better-informed decision. You won't, however, want to volunteer to one broker that another broker is advising you.

Once a broker or brokers have been selected, it's wise to monitor the progress of all investments closely and ask questions if you don't understand what's happening. Try to learn independently as much about your investments as possible.

Most investors set up an account with the broker, but only under very special conditions should they open a ``discretionary'' account that authorizes the broker to buy or sell securities without contacting the client first. Investment experts recommend avoiding such a ``carte blanche'' situation. Most people should buy and sell based on their own judgment and the recommendation of their broker.

Just like marriage, the relationship with a broker is something that needs constant tending and watchfulness. If a broker says, ``I recommend this stock because I'm buying it, too,'' that may be a warning flag that the investor is being taken for a ride. Just because a stock is good for the broker's needs doesn't mean that it's right for the customer.

``Most people instinctively know what they should and shouldn't be invested in,'' says Mr. Demaree of Thomson McKinnon. ``Most clients are smarter than their brokers, but they're easily intimidated by the market terminology.''