Can you trust your broker?

In the years leading up to my retirement at the end of 2000, I established a self managed super fund for my wife and me. Insurance policies and other super savings were pooled, and invested in Australian shares, taking advice from a share broker in a well-respected broking firm. One of the stocks I accumulated at prices around $4, forming a significant percentage of my portfolio, was the cyclical stock Boral, chosen largely for the excellent yield of fully franked dividends.

With its exposure to the cyclical Construction Industry, eventually challenging trading conditions resulted in the share price declining to eventually hover around the $2.25 mark. At this time, in the months prior to my retirement, somewhat belatedly my broker decided it was time for me to sell my underperforming Boral shares. I resisted this suggestion initially until a third persuasive phone call resulted in me finally relenting and selling my valued shareholding for $2.05.

Within weeks of the sale Boral announced a demerger of the company, spinning out the Energy assets into a separate company, Origin Energy. As a shareholder I would have been entitled to shareholdings in both Origin and the new Boral shares. Bitterly disappointed I contacted my broker again wishing to get back onboard again, but he spoke disparagingly of the two companies and I did not have the strength of my convictions to oppose his advice.

Soon the share price increase made it impossible for me to buy back my shareholding. Eventually the Origin share price reached $15, and the leaner Boral shares $10.

I have never forgotten this incident which taught me an important lesson; your investment adviser may have divided loyalties, and not necessarily act in your best interests. You should not accept investment advice without doing some research yourself.

Soon after this I transferred my portfolio to a discount broker, and undertook a study of Technical Analysis. The time and expense to become as financially literate as possible is well worth it. I prefer to take responsibility for my own investment decisions, and more importantly, then retain control of our own funds.

Be wary of unsolicited calls from your share broker! Find out what is in it for him/her.



Categories: Superannuation, Trading opinion

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