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Minimizing broker commissions and protecting savings

Written by Diane Archer

The New York Times reports on a family caregiver’s efforts to protect her mom’s savings in a retirement account.  The account, at JP Morgan, lost $100,000 over one month because of broker commissions. How do you minimize broker commissions and protect savings?

Given how strong the economy has been, the caregiver could not understand how her mom’s account had lost $100,000. She looked at her mom’s statements and spoke with the broker. She discovered that JP Morgan had earned about 10 percent in commissions over the course of one year, $128,000 on $1.3 million in savings.

Every time the broker sold stocks and other investments, he made a commission. And, he made literally 344 trades in one month on behalf of the caregiver’s mom, at his own initiative. JP Morgan reported that the mom had requested all these trades on her own, which was not the case.

In fact, the mom had discussed with her broker selling a single stock if she needed additional cash. Her broker sold that stock but in eight trades in one day, instead of a single one, for which he received eight commissions and not one, And, he kept some of her stocks in a margin account, which she had never authorized.

Once her daughter uncovered these excessive commissions, the broker reduced the commissions some. But, her mom still paid 3.8 percent on her JP Morgan investments for the year, about four times more than most people pay. The daughter ended up settling with JP Morgan for an undisclosed amount, JP Morgan did not fire the broker.

Regrettably, the Trump administration and Republicans in Congress overturned the federal regulation requiring brokers handling retirement accounts to act as fiduciaries. This means that brokers and others who manage retirement accounts can act on their own behalf; clients’ financial interests do not come first.

Before investing your money with a broker, discuss the commission structure. It generally should not be more than one percent of your savings each year. If you have investments at a bank, keep in mind that your broker is not required to act in your best interest. Make sure that your broker is not making trades without your permission. Also, make sure that any authorized trades are done in one fell swoop to minimize the broker’s commission.

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