A Stockbrokers' Education in Money Management

I want to thank the editors of TheStreet.com for an invitation to write for RealMoney. I began as a retail stockbroker at AG Edwards & Sons in 1991. Being a retail stockbroker gave me valuable insight into the psychology of the individual investor. It was an invaluable experience.

Stockbrokers can play a critical role in the financial well being of their customers, but one criticism of the brokerage business is that, given the amount of money typically entrusted with an average investment broker, these brokers, more times than not, lack the skill to effectively manage money. This is not to say that stockbrokers need to be right all the time, but they must have a very clear understanding of what they are recommending to their customers, proactively rather than retroactively.

An example of this is the recent turmoil in the closed-end bond fund market. Many stockbrokers recommended closed-end bond funds as an alternative to low-yielding money market accounts. There is no question that the stockbrokers recommending closed-end bond funds truly had the best interests of their customers in mind. However, because of the general focus on gathering assets (charging a fee on those assets) and maintaining relationships rather than performance, it is perfectly rational to forgo reading the prospectus. The risks were all laid out in black and white.

A good stockbroker or investment adviser will always function as if Wall Street is an enemy trying to get his or her customer's money and that he or she is the only barrier protecting customers from Wall Street. An effective stockbroker believes that a customer relationship will last a lifetime. Therefore, when recommending an investment or strategy to a customer, an effective stockbroker will critically examine all the positive and negative attributes of any proposal and know the risks before recommending an investment.

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At the time of publication, Horlbeck had no positions in securitied mentioned.

Todd Horlbeck is president and founder of Horlbeck Capital Management, which he founded in 2002. Horlbeck was previously an investment broker at AG Edwards & Sons for 11 years. He is a graduate of the University of Wisconsin-Madison and lives in St. Charles, Ill.