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How Kidder Deal Affects You

October 18, 1994|KATHY M. KRISTOF | TIMES STAFF WRITER

Announcing one of the biggest brokerage industry acquisitions in history, PaineWebber Group said Monday that it will buy Kidder Peabody & Co. in a stock swap worth roughly $670 million. The transaction will turn PaineWebber into the nation's fourth-largest brokerage, but many of the combined company's employees--and customers--will be displaced as PaineWebber shutters branches and jettisons workers.

What will the merger mean to retail customers of both firms? Here's a look.

Q. Will my broker be laid off?

A. That's unlikely, says Joseph Grano, president of retail sales and marketing at PaineWebber. The purpose of the merger is to give PaineWebber a better position in the retail market, so the firm plans to concentrate layoffs in back-office services such as accounting and data processing rather than in retail services.

Q. What happens if my broker does get laid off or quits because of the merger?

A. You will be transferred to a new broker. However, if you don't like the newcomer, you can ask to be transferred to somebody else, or you can follow your laid-off broker if he or she lands a job at another firm.

Q. How would I follow my old broker?

A. Assuming your broker lands a job with a reputable investment house, you would simply have your shares transferred to your broker's new firm. You will have to fill out paperwork at both brokerages. The new firm will want a new-account statement specifying your risk profile and objectives. PaineWebber will need closing documents verifying that you've asked the company to close your account and transfer your shares elsewhere. There is no need to sell your shares or pay a commission.

Mutual funds may be trickier. Proprietary mutual funds have to be sold before you leave a firm. Further, some outside fund companies have arrangements to have their funds held by customers of certain brokerage firms and not others, so you may not be able to switch such mutual funds held in your account.

Q. I'm not in love with my current broker, but at least I know he hasn't been indicted lately. How can I get the background of any new broker who may be assigned to my account?

A. The National Assn. of Securities Dealers has a toll-free "reference" line: (800) 289-9999. It's worth mentioning, however, that the NASD does not provide information about all types of complaints. Generally, the line picks up serious confirmed violations and sanctions but will not report information about pending actions, arbitration settlements or matters under appeal. The line operates between 9 a.m. and 5 p.m. EST.

Q. That doesn't sound very helpful. How do I make sure I'm not taken by a dishonest broker?

A. Remember: Most brokers are honest. However, your best defense against a bad investment--or fraud--is to be educated about your investments and investment options. The simplest rule of thumb is that if you don't understand an investment, pass. You may miss out on an opportunity here or there, but you'll also escape most of the scams.

If you think you've learned enough about investing, maybe you can try a discount broker who will charge you less but give you no advice.

Q. What happens to my Kidder, or PaineWebber, mutual funds? Will they survive the merger?

A. Initially, yes. But over time PaineWebber and Kidder proprietary funds that have similar investment objectives are likely to be merged. At that point, PaineWebber would circulate documents explaining the changes to mutual fund investors and ask for their approval, Grano says.

In fact, a combination may prove positive for shareholders in PaineWebber funds, which have performed miserably this year, says Don Phillips, publisher of Morningstar Mutual Funds in Chicago. Since the beginning of the year, the performance of 75 of the 76 PaineWebber funds Morningstar tracks have ranked among the bottom 10% in their respective investment categories, Phillips says. Presumably, he predicts, PaineWebber would transfer some management responsibilities over to Kidder, which has performed somewhat better.

Q. What if it goes the other way and the Kidder funds just perform worse?

A. That's possible, of course. Generally, anytime there is a management change at your fund or investment company, you should be extra vigilant about watching performance, Phillips says. Managers are pivotal in this business. If your fund's performance lags over the next 18 months, look for greener pastures.

Q. What about my branch?

A. Kidder now has 52 branch offices, many in the same towns as PaineWebber offices. Presumably some of the low-traffic branches will close. The company said it does not yet know which ones.

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