Weiss Ratings Recommends Four Steps When Selecting a Brokerage Firm

Business Wire, July 25, 2002

Business Editors

PALM BEACH GARDENS, Fla.--(BUSINESS WIRE)--July 25, 2002

Investors selecting a brokerage firm should consider integrity, safety, track record and commission costs, according to Weiss Ratings, Inc., the nation's only provider of ratings on brokerage firms.

Weiss Ratings recommends that investors follow these four steps:

Step #1. Investigate the firm's integrity. On the Web, investors should go to www.nasdr.com, click on "Check Broker/Advisor Info," "NASD Public Disclosure Program," and "Perform an Online Search." After entering the name of the brokerage firm, they will receive a report listing the private and regulatory legal actions against it.

In addition, investors can consult Weiss Ratings' Crisis of Confidence on Wall Street: Brokerage Firm Abuses and the Worst Offenders, which ranks the 18 largest retail brokerage firms from worst to best in terms of their legal history. For example, according to Weiss' analysis:

-- Prudential Securities and Ameritrade ranked worst in terms of the number of legal actions by investors and regulators between 1997 and 2001, with 69.5 and 67.11 actions per million customer accounts, respectively.(1) The average number of actions among the 18 firms studied was 29.28 per million accounts.

-- Fidelity Brokerage Services, Credit Suisse First Boston, and Edward D. Jones ranked best, with only 3.74, 4.96, and 8.09 legal actions per million accounts, respectively.

Step #2. Check on the firm's financial stability. Firms that take less risk and have adequate capital can usually withstand a negative market environment, whereas firms that are short on capital or vulnerable to major legal actions are more likely to fail. Of the 18 largest retail firms:

-- Those receiving Weiss' lowest ratings are Ameritrade, Merrill Lynch Pierce Fenner & Smith, and Credit Suisse First Boston (all C-).

-- Those receiving Weiss' highest ratings include A. G. Edwards, (A-), Edward D. Jones (B+), and Fidelity Brokerage Services (B+).

Step #3. Check on the firm's track record before relying on a broker's advice. Since conflicts of interest in the brokerage industry are so widespread, investors should carefully check a brokerage firm's current or past ratings on particular stocks by consulting www.finance.yahoo.com or www.stockselector.com.

Weiss reviewed the track records of 50 firms issuing ratings on companies that subsequently failed in the first four months of 2002, finding that 47 firms recommended that investors "buy" or "hold" shares in soon-to-fail companies.

-- For example, Salomon Smith Barney has one of the worst advice track records among the retail firms. The firm failed to issue "sell" warnings on eight companies that went bankrupt in 2002, while its "hold" ratings on these companies remained at major public sources right up to the day the companies filed for Chapter 11.

-- In contrast, Edward D. Jones is one of the few firms that did not recommend shares in failing companies, while taking the initiative to warn its customers of impending troubles.

Step #4. Shop around for the best commissions. Commission costs can have a dramatic impact on an investor's performance. With high commissions (charged by over one fourth of the nation's brokers), a $100,000 account would be completely wiped out in nine years by commissions alone, despite consistently profitable trades.

But the same $100,000 would grow to $208,374 in 10 years with the lowest commissions.(2) Among the 18 largest retail firms, Weiss finds that:

-- Merrill Lynch Pierce Fenner & Smith, UBS Painewebber, and Salomon Smith Barney, which are full-service firms, charge the highest commissions.

-- Fidelity Brokerage Services, TD Waterhouse Investor Services, and Ameritrade, as discount and online firms, charge the lowest commissions.

"Investors should not expect perfect results in all four steps, but a poor score in two or more of these areas should be a deal killer," counseled Martin D. Weiss, Ph.D., chairman of Weiss Ratings.

Weiss issues safety ratings on more than 15,000 financial institutions, including 697 securities brokers, and thousands of banks, insurers, and HMOs. Weiss also rates the risk-adjusted performance of more than 11,000 mutual funds and more than 9,000 stocks.

Weiss Ratings is the only major rating agency that receives no compensation from the companies it rates. Weiss ratings on brokerage firms are available free to consumers at many public libraries in the Weiss Ratings' Guide to Brokerage Firms, or for as little as $7.95 per company at www.WeissRatings.com or $15 by calling 800-289-9222.

Note to editors: This is the third release in a three-part series on the financial safety and integrity of the brokerage industry.

Weiss also provides a free report to investors based on its analysis of NASD data, Crisis of Confidence on Wall Street: Brokerage Firm Abuses and the Worst Offenders at www.WeissRatings.com/crisis_of_confidence.asp along with a Disclosure Questionnaire for Brokers and Analysts, available at www.WeissRatings.com/brokerquestions.