By John Wasik
Big banks just don't want to sweat the small stuff.
NEW YORK, Oct 21 Despite receiving some $4.7 trillion in taxpayer bailout funds, the largest of them are moving more towards wealthy customers with assets to invest and away from low-margin checking accounts. That doesn't mean you should invest with them, though.
The banks side of things is that that want well-heeled wealth management or brokerage clients, not people who are writing small checks to pay bills. For instance, Bank of America , which recently announced a $5-a-month debit-card fee, said about two weeks later that it was planning to nearly double the number of "Financial Solutions Advisors" for its mass affluent clients.
The growing array of banking fees -- common at most big banks now -- are a red herring for bankers' larger agenda of generating more income from advisory and brokerage accounts, as brokerage accounts have the potential to generate hefty commissions and advisory fees.
I suspect that BoA, which recently fell to the second-largest bank by assets, would rather get more customers into its Merrill Edge account. BoA is offering $100 plus up to 30 commission-free online trades to sign up. Just deposit at least $10,000 in cash or securities in their Merrill cash management account first.
What if you have some serious retirement or discretionary money to invest? Are big banks giving you more bang for your investment buck? As you shop for new investments, keep in mind that big banks may continue to raise fees and charge high commissions.
Here are some key questions to ask your bankers if they want your business:
What's their commission schedule for securities trades?
If you're an active investor, this is an essential question. Order execution is a commodity business now. Many online deep-discounters range from free trades (for introductory offers) to as low as $2.50 per transaction.
Do they offer comprehensive financial planning?
Many, if not most, of bank-lobby investment advisers are commissioned representatives who are paid when they sell products like mutual funds and annuities. Ask them if they are certified financial planners. If you need extensive retirement, tax, estate or portfolio planning, your local bank may not be the right place to go. You may need to ask for a "private" banker.
What products do they recommend?
While there's certainly no sin in earning a commission, look at the overall cost of the products. Do they earn a commission plus management fees? Do they recommend their "house" brand of mutual funds? There are many cheaper, more diversified alternatives such as the DFA group of funds, which are sold through investment advisers and financial planners.
Do they push products without detailed questions about your financial goals?
This is a red flag that they want to earn a commission and not provide meaningful advice.
Are they fiduciaries?
This is a specific legal term than means they must put your interests above that of their employer. They can be sued for giving you bad advice. But if they're solely registered as securities brokers, they fall under looser "suitability rules," which means you would likely have to submit to industry-run arbitration and may not have access to the courts in the event of a dispute.
Do they push annuities?
You can buy fixed-rate and variable annuities direct from issuers and save on commissions. A bank is not a good place to buy an annuity.
I know the inherent appeal of a bricks-and-mortar bank branch that sits comfortably in your neighborhood or in the center of a downtown business district. They are hard to resist. We're still drawn to the idea of the friendly local banker. George Bailey lives in our cultural imagination.
Yet, when it comes to investing, you may be better served by seeking the services of a registered investment adviser, financial planner, certified public accountant or chartered financial analyst. They may offer more sophisticated and customized service and could save you a lot of money by avoiding high-priced, low-performing products.