Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: MONDAY, January 20, 1992 TAG: 9201190029
SECTION: BUSINESS PAGE: A-7 EDITION: METRO
SOURCE: MAG POFF
DATELINE: LENGTH: Long
HOW TO BEEF WITH A BROKER
Q: Several months ago I asked my broker adviser to send me all of my invested money, as I would be more content if I had my money in CDs at my local bank. He said that move would cost me between $3,000 and $4,000. I did not move my money because of that loss.I showed my statement to my son, who said it appeared to him that my money was being "eaten up" with commissions to the financial adviser. I have no one from whom I can seek advice, and I surely do not want to make any financial errors. I am almost 72 years old and am quite concerned. I know my financial value to be relatively small, but it is large to me.
A: You do not say how your money is invested. Most brokerage portfolios can be shifted easily. Few investments carry withdrawal penalties except for annuities or rear-load mutual funds.
You appear to be dealing with an out-of-town broker by telephone, but he is with a national firm with a decent reputation. Your problem may involve only getting around the broker.
Start simply by calling the office where you do business and ask to speak to the manager instead of to your broker. Tell the manager that you want to withdraw your money and that you feel the broker is churning your account. Have all your records at hand when you make the call. Tell the manager you plan to file a formal complaint unless the matter is resolved to your satisfaction.
If that doesn't work, you can make a formal complaint about the broker. Explain your situation in a letter addressed to: Securities and Exchange Commission, Office of Consumer Affairs, 450 Fifth St. N.W., Mail Stop 2-6, Washington, D.C. 20549.
If you believe that you are being cheated, consider taking your papers to a lawyer. If the broker is indeed churning your account or trading without your authorization, you might be able to sue or seek arbitration to recover your money.
Saving for college
Q: We have an annual income of about $70,000, a 2-year-old and a plan to have two more children.
What would be the best way to build a college fund? We can save about $400 a month toward this. I thought of U.S. Savings Bonds, but cannot decide between buying in our name and thus avoiding the federal tax at maturity when it is used for tuition, or in our child's name so he pays at a lower tax rate.
My husband has self-employment income of $20,000 to $25,000, included in the above figure. We would like to invest in a SEP-IRA. I have read a lot about the investor's decision line of switching to stocks when the prime rate is below 10 percent and back to money market when it is above. The rate is well below 10 percent now, but from my general reading it appears that stocks are overvalued. Should we invest in stocks now? It would be through a mutual fund, as I do not have the time nor inclination to be directly involved. How about zero-coupons in any of the above situations?
A: Keep the education fund in your own names even though this is not the most favorable course for tax considerations. You lose control over money in the name of your child, who can blow it on anything at the age of 18. And you cannot know this far in advance the differing abilities, interests and educational needs of your three children.
The U.S. Savings Bonds are not for you. The tax advantages on tuition expense begin to phase out in your income bracket. That phase-out begins with an adjusted gross income of $62,900.
You should diversify your educational money into several different funds. But with your child so young, you must seek growth, and the historic way to growth is through stock mutual funds. Market prices are high, but you have a long horizon to outride the ups and downs of the stock market. A fund will allow you to make periodic investments, as you propose, and the taxes on any capital gain will be deferred. As your child nears college age, you gradually move the money into cash investments so that values cannot drop suddenly on the day tuition is due.
The same reasoning applies to the IRA. Split your money over several types of investments so that you earn something as market conditions fluctuate. Zero-coupon Treasuries are a good possibility, along with various types of mutual funds.
Funds are safe
Q: In January 1989 I transferred my IRA funds to Investors Savings Bank in a five-year retirement CD paying 9.25 percent with a maturity date of Jan. 26, 1994. The fair market value of the IRA is $40,000 and it has a penalty clause of 180 days' interest. Now that the Resolution Trust Corp. has taken over Richmond-based Investors, what is my next move? Needless to say, I am concerned about my funds.
A: You can't earn that interest rate elsewhere today, and you want to avoid the penalty. Leave your money where it is. You need not be concerned about your IRA because deposits in accounts up to $100,000 at the surviving bank, Investors Federal Savings Bank, are insured by an agency of the government.
Mag Poff covers banking and finance for the Roanoke Times & World-News. She will help find answers to your personal finance questions. Send them to her at the Roanoke Times & World-News, P.O. Box 2491, Roanoke, Va. 24010.