Brokers are not permitted to recommend undervalued stocks….

      The majority of the large full service American brokerage houses no longer allow their brokers/financial advisers to do their own independent research and choose their own stocks…. or to make recommendations to clients unless they are covered by their own firms’ research departments. This severely limits the opportunities and choices investors deserve, it also puts them at greater risk. Moreover, the brokers and financial advisers cannot use any of the many excellent and time-tested research services that are readily available. And there are many of them.

Why do the major brokerage houses consistently make such poor and often catastrophic stock recommendations? The fact is that they are “trapped” as they are in essence there to support their own firms’ recommendations. Long after their own firms’ recommendations have been selling at the higher end of their valuation and price ranges, the same recommendations often continue leading to disasters.  

 That absolutely ridiculous restriction on stock choices is despite the fact that the history of major brokerage houses’ performances in their stock recommendations range generally from mediocre to abysmal. Experienced investors have known that for decades. Most knowledgeable and experienced  investment advisers/brokers already know that and for years focused on doing their own research. For many advisers, their brokerage houses’ recommendations did little but embarrass them for following their advice.

However there have been numerous independent investment advisers/brokers performing as independent money managers who perform their own research with superb results for years. Again…. we are saying that today the major “big name” American brokerage houses only permit their brokers to invest in stocks that are covered by their own brokerage houses’ research departments universe of stocks.        

    Yes that’s the rule…Most brokers/advisers can no longer recommend their own self researched stock choices obtained from historically accurate and successful private investment services as well as from their own personal research.  That is tragic! The effects? Over the last several years, many capable and knowledgeable brokers have left the brokerage industry.

Many advisers/brokers have told us that for years that using their firm’s research performance proved humiliating. They were not able to invest in stocks that were undervalued as their firms would not allow it. They were required to only invest in stocks that their firms covered on a research basis. It was “invest in what is popular, not what is undervalued.”

Not long ago I asked a National Hockey League retired  Hall of Famer  for his view on his experience with the advice of the brokerage industry. His response? “If they had to depend on the accuracy of their advice just  to survive, most of them would starve to death.”               

Thank you, K.C. Grainger and Bob Pellerin