In every investor's life the "broker" is a figure of prime im­portance. It is through him that all securities transactions are handled; there is no way you can buy or sell stocks listed on any national exchange except through his services.

In the trade, he is known as a registered representative, a title that has now supplanted the old designation, "customer's man." He is a registered employee of a brokerage firm, pref­erably one which is a member of the New York Stock Exchange. He is not a broker as such, but is the liaison between you, the customer, and the firm's commission broker who executes orders on the exchange floor.

What He Does

The representative's job is to extend to investors all the services of his firm. He will, first of all, transmit your orders to buy or sell securities—stocks or bonds, listed or unlisted (over-the-counter), domestic or foreign, in round lots, odd lots, or piecemeal through the Monthly Investment Plan. He will also buy or sell rights or warrants which, in simplest terms, are options to purchase a certain number of shares of a stock issue. He will arrange the purchase or sale of commodity futures—grains, coffee, cotton, soybeans, what­ever you are interested in.

He will place any type of order you specify: at the market, limit, stop. He will buy on margin or arrange a short sale.

He will be available for consultation on the merits of particular stocks or industrial groups, or for analysis of your entire portfolio. He will supply stock studies, news­letters, market analyses, and whatever other literature his firm issues. He will hold your securities for you in the firm's vault, collect your stock dividends or bond interest, and send you a periodic statement on any shares held for your ac­count.

His fee: the standard commission you pay on the pur­chase or sale of securities. There are no other charges for his services (although you will pay interest, naturally, on money you borrow from him for a margin purchase).

What He Doesn't

Your representative will not—and should not—serve as a stock market tout or tipster. Unless you request him to, he will not volunteer advice on buying or selling. He will not choose for you between two stocks that seem equally at­tractive. He will not hustle you into the market and then sell you out; the fast turn-around is not his way of doing busi­ness.

What a Brokerage House Is Like

Brokerage houses are pretty much like offices everywhere, except for the presence of the fascinating paraphernalia of the market. The customers' room in the usual large brokerage house has a quotation board on one wall. The arrangement of items may vary, but basically they all offer the same data. For each stock listed—and it is a pretty large board that shows much more than the leaders in any particular group— the quote board will indicate the present and past year's high and low, the previous day's opening, high, low, and closing prices, and the successive prices of the current day's sales. There may also be a panel of commodity prices. Very likely there will be either a ticker machine or a projection of its tape on a screen which enlarges the figures sufficiently for them to be read across the room. There may also be a Dow-Jones ticker which taps out news, statistics, and what­ever economic and financial information the extensive D-J organization may dig up.

Generally, chairs or benches are ranged in front of the quote board so that customers may take their ease while learning what the new day brings.

This is all for your convenience. Of course, you can get the same information simply by phoning your broker, but his office welcomes your visit.

What you do not see is your firm's research department, accounting department, and vault—though you can if you wish. The research department consists of a staff of securities analysts who study and report on the performance and pros­pects of various stocks. Many analysts hit the road frequently to examine companies firsthand. Some specialize in oils, others in railroads or utilities. Much of their work is continuing study of one company after another, but they are also avail­able for specific analyses at a customer's request. (No one will do a special run-down on duPont to see whether you should buy 10 shares, however!)
The accounting department is, of course, responsible for keeping track of the thousands of transactions completed, and  for  maintaining  records   of  each  customer's  position.

Many brokerage houses are also investment banking firms, prepared to share in underwriting new securities issued by companies seeking more capital. As will be explained in more detail further on, a company issuing stock does not sell directly to the public. It sells the entir,e issue to a syndicate of underwriters, which resells it at a small mark-up, or "spread," to the public. In this case, no commission is charged because the broker's expenses and profit on the distribution are included in the premium you pay. (When 10.2 million common shares of Ford Motor Company were issued in 1956, the largest distribution in financial history, they were sold to a syndicate of more than 700 under­writers at $63 per share. The price to the public was $64.50 per share or a spread of $1.50. As spreads go, this was very small—even though it meant a total of $15,300,000 to the syndicate.)

Brokerage houses may also "take a position" in a stock. This simply means that partners or officers, or the brokerage company itself, may follow their own advice and buy one stock   or   another.   Since   the   subsequent   performance   of these stocks may depend on how many other people become interested in them, brokerage houses scrupulously report their holdings to the public. As a customer, you can then decide whether Blank stock is a good buy because your smart broker has a piece, or whether his report on Blank is tinged with undue enthusiasm because he holds it.

The ramifications of brokerage are many, but the central concern of every good house is the service it provides its customers. Not just its rich customers, either. Read the ads. Analyze the educational and promotional literature brokerage houses are putting out, and you will see that much of it is directed at the small investor. Have no fear that you will get a cold eye or a second-class treatment because you have only a few hundred dollars to invest, or simply want to start a $40-a-month Investment Plan. These days, everyone is welcome.

Be frank with your broker. The more you can tell him about your circumstances and objectives, the sounder his advice will be. There are more than a thousand stocks listed on the Big Board alone. Their prices differ, their yields differ, the reasons for buying any one of them will differ. Your broker can help you narrow the choice more sensibly if he has an idea of your income range or tax bracket, how much you can invest, how frequently, whether you have other stocks and, if so, which ones, and whether you are looking for income, growth, diversity, or simply playing hunches.
Do not worry about being high-pressured. The decisions are all yours. There is no need to buy anything or any amount you can't afford or don't want. Many brokerage firms are paying their representatives salaries, rather than commissions, to eliminate the possibility of personal involvement in whether you buy or not. So, listen carefully, and then make up your own mind.

Opening an Account

If you have shopped around a bit and satisfied yourself that one brokerage house is both reputable and pleasant to do business with, you are ready to open an account.

This costs you nothing. It is rather like opening a charge account at a department store. The broker simply needs to know who you are and what your credit is, so that he may be sure you can pay for the goods you order. And promptly. Unlike the department store, the brokerage will not send you a monthly bill. "Regular way" transactions, the kind you will meet up with most often, require that stock bought be paid for, or stock sold be delivered, within four business days.

Accordingly, the representative will want your name, ad­dress, and phone number, the name of the place where you work, and some references. Usually, the name of your bank and some  of  your  charge accounts   around town will do.

There are several kinds of accounts available to you. The basic one is the cash account which establishes you as a bona fide customer able to buy or sell. Joint accounts may be opened by a husband and wife. Like a joint checking account in a bank, this gives the partner who survives the other the right of access to the account without waiting for an estate settlement. Investors unrelated to each other who wish to invest co-operatively may also open a joint account.

Margin accounts are an extension of the cash account which permit the customer to buy on margin. Since these mean the broker is willing to loan you part of the purchase price of your securities, the credit investigation is somewhat more searching.

Discretionary accounts may also be set up in special cir­cumstances. This means giving your broker a power of attorney to decide when and what you should buy or sell.

A relatively new development permissible in 23 states, enables you to buy stocks for minors, you serving as cus­todian. It removes the necessity of establishing a trust, often an elaborate and expensive procedure, as was formerly the case, or, even more awkwardly, getting a court order ap­pointing yourself your own child's guardian.

Commissions

The broker's commission is exacted on both sides of each transaction. The buyer pays his broker, the seller his. In addition, the seller pays a Federal transfer tax, a state trans­fer tax in New York, Florida, South Carolina and Texas, and a Securities and Exchange Commission registration fee.

In 1958, by a vote of a majority of the members, com­missions on the New York Stock Exchange were raised, on the ground that the costs of the broker's research, account­ing, and other services were not being met by existing com­missions.

Commissions are based on the amount of money paid, or received, for each round-lot unit of 100 shares, or odd-lot unit of one to 99 shares, of stock priced at $1 per share or more. If the sum involved is $100 or more, the minimum commission per round- or odd-lot unit is $6, the maximum is $75.

The present  commission  formula is  as  follows:

For amounts under $100, the commission shall be as mutually agreed. Usually, but not always, it is 6 per cent. On a $40 payment into the Monthly Investment Plan, for instance, the levy is $2.26, or 6 per cent of the $37.74 in­vested.

Amounts of $100 to $399 are charged a flat fee of $3 plus 2 per cent of the money involved. On $200, the com­mission would be $3 plus $4 (2%), or $7.

Amounts of $400 to $2,399 are charged $7 plus 1 per cent of the money involved. On $1,500, the commission would be $7 plus $15  (1%), or $22.

Amounts of $2,400 to $4,999 are charged $19 plus % of 1 per cent of the money involved. On $3,650, the commission would be $19 plus $18.25 (.005%), or $37.25.

Amounts of $5,000 and above are charged $39 plus 1/10 of 1 per cent. On $7,600, the commission would be $39 plus $7.60 (.001%), or $46.60.

Odd lots in each category over $100 are $2 less. That is, the percentage charges are the same and the flat fees are $2 less—$1, $5, $17, and $37.

Another way of looking at the round-lot formula is by the price per share that is involved. Since we are working with the decimal system, the money category of $100 to $399 per 100 shares means a per-share price range of $1 to $3.99. The percentage charge likewise becomes an equivalent of the price per share.

On this basis, if the share price is between $1 and $3.99, the commission will be a fee of $3 plus twice the price per share. (At $2 per share the commission on a round lot would be $3 plus $4—twice the share price—or $7.) From $4 to $23.99, the commission would be $7 plus the price per share. From $24 to $49, it would be $19 plus one-half the share price. From $50 to $359 per share, it would be $39 plus one-tenth of the share price. At $360 and above, it would be the maximum charge of $75 per round lot.

Commissions on transactions involving multiples of 100 shares are multiplied accordingly. A $40 commission on 100 shares would be $80 for 200, $120 for 300, and so forth.

On intermediate amounts such as 110 to 120 shares, the commission would be a combination of the round-lot com­mission for 100 shares and the odd-lot commission for the balance.

A scale has also been worked out for stocks selling at less than $1 per share. If the amount involved is over $100, the commission, again, will not be less than $6. If it is less than $100, a graduated scale goes into effect which ranges from $5.25 per 100 shares for stocks selling between $.875 and $.99 per share, to $.10 per 100 shares for those selling at 1/256 of $1, or $.00390625. In other words, you could buy 25,000 shares at this bargain price for a cost of $97.66. Since the amount is under $100, the $.10 per-100-share rate will be in effect, so your commission payment would be 250 x .10, or $25, unless by mutual agreement it was set at a lower figure.

Actually, it is unlikely that you would ever encounter a stock selling at such a price. Occasionally, the stock of a bankrupt corporation, an extremely inactive stock, or a highly speculative, over-the-counter mining stock will sell at fractions; the so-called "penny stocks," for example. But usually these minimal prices apply to rights or warrants.

The Federal tax on the sale and transfer of stocks is a fairly healthy bite. It is at the rate of $.04 on each $100 (or major fraction) of the actual value of the stock involved. $1,000 worth of stock is taxed at $.40. $2,500 worth is taxed $1. On stock selling at more than $200 per share, the tax is limited to $.08 per share.

New York State's transfer tax is $.01 per share for stocks selling at less than $5; $.02 for those at $5 but less than $10; $.03 for those at $10 but less than $20, and $.04 for those at $20 or more.
Florida charges $.10, South Carolina $.04, and Texas $.33 per $100 of par value, or per share on no-par stock, regardless of price.
And the SEC charges $.01 for each $500 or fraction of the total sum involved.

So, if you sold 100 shares of stock at $40 per share in New York, your broker would receive, on the $4,000 in­volved, a commission of $39 ($19 plus one-half the price per share). The Federal government would take $1.60 ($.04 per $100 involved). New York State would take $4 ($.04 per share selling at more than $20). And the SEC would get $.08 ($.01 for each $500 involved). Total charges: $44.68. Net to you: $3,955.32.

When odd lots are involved, there is, in addition, the odd-lot dealer's standard fee of ⅛ of a point ($.125) per share on stocks selling below $40 and ¼ of a point ($.25) on stocks at $40 or above. This charge is included in the price at which you buy or sell. If, for instance, the first round-lot sale after your order to buy an odd lot "at the market" reaches the floor is $42, the price to you will be $42.25. If you are selling, your price will be $41.75.

Buying 10 shares, therefore, would cost $422.50, plus a commission of $10.23 ($6 plus 1 per cent of the amount involved), and a Federal tax of $.16. Selling 10 shares would bring you $417.50, minus a commission of $10.18, a Federal tax of $.16, a New York State tax of $.40, and an SEC fee of $.01. Total charges: $10.75. Net to you: $406.75.

The broker's accounting to you which confirms the trans­action (printed in black for a purchase, red for a sale) will have all these items neatly typed in their appropriate boxes. You won't even feel it.

Incidentally, transfer taxes, although not commissions, are deductible for income-tax purposes.