Wall Street curves away from Main Street
By John Waggoner
USA Today
Come to the Vanguard Group with $1 million or more, and you get portfolio advice, low fees and a personal representative to attend to your investment needs.
Come to Vanguard with $10,000, and you get a guy on the other end of the phone.
Gannett News Service
Come with less than $1,000, you get turned away.
Vanguard is typical. Increasingly, the message from Wall Street is that small investors need not apply. Merrill Lynch, which once bragged about bringing Wall Street to Main Street, requires a $100,000 ante to sit down with a broker. And Charles Schwab, pioneer of discount brokerage, pushed up fees on small accounts in an effort to make them be profitable — or go elsewhere.
Nearly every brokerage, brokerage house and bank has a special team that caters to the wealthy. Small savers, on the other hand, pay more for their investments, get little advice and often get the raw end of investment scams.
All of which could be dismissed as the way the world works, except for one thing: Today's small investors aren't the stock dabblers of a few decades ago, who bought and sold stocks for the thrill of playing the market. They're investors because they have to be. Their retirement depends on it.
Options for getting started: IRAs. Most funds and brokerages will let you start an IRA for less than a regular taxable account. The Janus Fund (800- 525-3713) will let you open an IRA with $500; so will Fidelity Fund (800-343-3548), Third Avenue Value (800-443-1021) and Ariel (800-292-7435). Automatic investment plans (AIPs). If you agree to let a fund company tap your bank account electronically, some will let you start small. T. Rowe Price (800-638-5660) will let you start an AIP with $50, provided you let the company withdraw that much each month until you reach a fund's normal minimum. So will USAA (800-382-8722). Where to get advice: A fee-only financial planner. They don't take commissions and don't like small accounts much, either. But you could buy a few hours of the planner's time to gauge your needs, says Mercer Bullard, founder of Fund Democracy. No-load funds. Many have excellent online planning tools.
Pensions, once a mainstay of retirees, are disappearing. Just 17 percent of all private employees have traditional defined-benefit pensions, according to the Employee Benefit Research Institute (EBRI), a nonprofit research group. That's down from 44 percent 20 years ago.
How to grow retirement funds with small start
If you can't depend on a pension, you have to rely on your savings. But it's expensive to be a small investor. Small accounts cost more to service, and financial-services companies pass on the fees to customers.
The more you pay your fund or your broker, the less you earn, and the less likely you are to have enough to retire.
"Without a doubt, small investors get dramatically inferior treatment," says Douglas Schultz, a Westcliffe, Colo., securities expert.
Financial-services companies can easily nickel-and-dime investors out of a portion of their earnings. Example: To save $1 million in 30 years, you have to save $820 a month and earn 7 percent annually. Give 2 percentage points a year to your fund or your broker, and you'll end up with $828,000 — $172,000 short.
Richard Brenner, a postal employee in Hamilton, Mich., got slapped with a $50 fee from Wachovia Securities because his account was less than $250,000.
"That was 10 percent of my earnings," he says. In protest, he moved his money to Hilliard Lyons, which doesn't charge the $50 annual fee and reimbursed him for an additional $50 fee that Wachovia charged for closing his account.
Wachovia says the $50 fee pays for generating account statements and other services.
Even at retirement, most people haven't saved enough to be considered large investors by Wall Street standards.
The average defined contribution balance for employees of long tenure and continuous participation is $175,000, EBRI says.
Not only do small investors pay more, but they get less — particularly when it comes to advice. For example, investors in defined contribution plans, such as 401(k) plans, typically get no advice. Companies are required to give participants some information about the investments in the plan, but they don't tell them which investments best suit their needs.
