Case: PETER AND DEBORAH'S CHOICES OF BROKERS AND ADVISERS
Peter Chang and Deborah Barry, friends who work for a large software company, decided to leave the relative security of their employer and join the staff of Online Speed Limited, a two-year-old company working on new broadband technology for fast Internet access. Peter will be the director for new-product development; Deborah will be finance director. Although they are excited about the potential their new jobs offer, they recognise the need to consider the financial implications of the move. Of immediate concern is their superannuation funds. On leaving their current employer, each of them will receive a lump-sum settlement of about $75 000 that they may roll over into a self-managed fund or into their new employer's fund. Peter is 30 years old and single, with a bachelor's degree in computer science. He rents a unit and would like to buy a townhouse fairly soon but is in no rush. For now, he is happy spending his money on the luxuries of life. He considers himself a bit of a risk taker and has dabbled in the sharemarket from time to time, using his technology expertise to invest in software and Internet companies. Deborah's undergraduate degree was in English, followed by an MBA in finance. She is 32, married, and hopes to start a family very soon. Her husband is a doctor in private practice. Peter is very computer-savvy and likes to pick shares on the basis of his own Internet research. Although Deborah's finance background gives her a solid understanding of investing fundamentals, she is more conservative and has thus far stayed with blue-chip shares and managed funds. Among the topics that come up during their lunchtime conversation are stockbrokers and financial planners. Peter is leaning towards a bare-bones online broker with low cost per trade that is offering free trades for a limited time. Deborah is also cost-conscious but warns Peter that the low costs can be deceptive if you have to pay for other services or find yourself trading more often. She also thinks Peter is too focused on the technology sector and encourages him to seek financial advice to balance his portfolio. They agree to research a number of brokerage companies and investment advisers and meet again to compare notes.
QUESTIONS
1. Research at least four different full-service, discount and online stock brokerage companies, and compare the services and costs. What brokers would suit Peter's needs best, and why? What brokers would suit Deborah's needs best, and why? What are some key questions each should ask when interviewing potential brokers?
2. What factors should Peter and Deborah consider before deciding to use a particular broker? Compare the pros and cons of getting the personal attention of a full-service broker with the services provided by an online broker.
3. Do you think that a broker that offers no online trading but focuses on personal attention would be a good choice for either Peter or Deborah?
4. Peter mentioned to Deborah that he had read an article about day trading and wanted to try it. What would you advise Peter about the risks and rewards of this strategy?
5. Prepare a brief overview of the traditional and online sources of investment advice that could help Peter and Deborah create suitable portfolios. Which type of adviser would you recommend for Peter? For Deborah? Explain your reasoning.