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Dear Dagen: In Defense of Brokers

Also from this week's mailbag, Ralph Wanger explains the closing of two of his Acorn funds.

There's another side to every story, whether you're talking about Mafia bosses, corporate polluters or stockbrokers.


last Thursday's column on how to get back at your broker, this week's mail contains some responses in defense of brokers everywhere. And the sentiments are worth repeating.

Ron Pellegrino

expresses his exasperation by writing:

Jeez. As a 25-year vet of the securities industry, I've seen and resolved many customer complaints. If the issue is trade execution, get a time and tape. Market conditions excepted, if the firm delayed the order, the time stamps will reflect that. I am a proponent of online trading (and am in the minority within my own industry) as a tool to be used by knowledgeable and thoughtful individuals. The obvious needs to be said. ... If you want to do it yourself, then you'd better understand trading rules, priority, etc.

I couldn't agree more. Investors, particularly those trading online, have to be aware of the myriad factors that go into the execution of a trade. It's about more than just the bid/offer that you see on your computer monitor. That's a small snapshot of a stock or a market that could be moving very quickly. For example, the number of orders ahead of your own will certainly have an impact on when yours gets filled.

Clients Can Get Just as Nasty


Steve Horwitz

points out that a brokerage firm is not always the party that's up to no good.

"Once upon a time I was an account executive (I think my ex-firm is now calling them financial advisers, soon to be changed to friend and counselor) for a national brokerage firm with a recognizable name. And I got to see my share of not only clients getting screwed by brokers but also brokers being screwed by clients," Horwitz writes. "Perhaps for the sake of balance, you might investigate reneges."

In Wall Street parlance, a "renege" is a buy order placed with a broker that the buyer then refuses to honor when markets turn against the position.

Even if "brokers and brokerages fail to execute orders or, in some cases, even act fraudulently because of incompetence or greed, there are many instances in which the same human tendency toward incompetence and greed reveals itself among the clients," says Horwitz.

I guess sometimes greed isn't good.

Exit Stage Left

Rather than fighting and fretting, sometimes an investor is better off just packing up and moving on.

Ted Kitos


It has been nearly a year since I first emailed you regarding my broker. At the time I was shocked by the manner in which I had been treated. One year later, a year spent with Fidelity, the difference could not be more 180 degrees. They are so responsive and courteous in comparison to my former broker that sometimes I think they must be faking it and are secretly selling my entire portfolio. Their forms are short and simple without print so small a microscope is needed; the brokers are incredibly nice and so willing to help; and their reports to me are done promptly without errors. Frankly I am relieved only to know that I was not the problem.

I love a happy ending.

Going Too Soft?

Ronald Guest

writes to tell me I'm a weakling, albeit one who weighs more than 98 pounds.

"I feel you are being too kind to the mutual fund companies (and fund supermarkets) that want to charge fees for people who sell fund shares 'too soon' after purchase," he writes.

Indeed, more mutual fund companies are imposing short-term redemption fees on their funds, as I pointed out in a

column last week.

Guest writes:

To my mind, this is just an excuse to impose a fee, a la the bank strategy of recent years. I feel this way because there are clearly legitimate reasons why a shareholder might sell shares recently purchased. To cite a few: The fund manager leaves or the fund does very well in a short time and the investor wants to rebalance his or her portfolio. If the goal of these funds and supermarkets was to avoid the expenses and turmoil caused by frequent trading, they would adopt a scheme that would only kick in when someone has shown a pattern of short-term trading.

If only the fund companies were listening.

Wanger's Words

It's always important to hear from a professional.

After Tuesday's

column on how funds often falter after closing to new investors, Ralph Wanger shared his reasons for closing two of his popular



To look at what happens after a fund closes, you must start with asking, "So why did they close?" I have closed two funds ( (ACRNX) Acorn Fund and (ACINX) Acorn International), and the cause was a flood of cash that exceeded our organizational capacity to invest it. Why was there a flood of cash? Because we had been in a hot market sector, and our great performance numbers drew in performance-chasing investors. For instance, 1993 was the best year ever for foreign stocks. Everybody wanted to own them, and the flow of cash was so great we closed Acorn International in February 1994. These investor enthusiasms are greatest at the top of the market, by definition. After we closed, foreign stocks then underperformed the U.S. market for the next four years. We did well compared to appropriate foreign benchmarks, but not as well as the S&P 500. In other words, market peaks make funds close, and after the peak the funds cannot be as good. The proper statistical test would be to compare funds that closed with similar funds that did not close over the post-closing period. Your data suggests that closed/not-closed funds might come out about the same.

Both funds are now open.

Send your questions and comments to, and please include your full name.

Dear Dagen aims to provide general fund information. Under no circumstances does the information in this column represent a recommendation to buy or sell funds or other securities.