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Seniors Uninformed on Broker Pay, Study Says

April 24, 1998|From Associated Press

WASHINGTON — While most older investors know that stock brokers are paid in commissions, they have a fairly limited understanding of the details of brokers' compensation and how that could affect the advice they get, a survey released Thursday shows.

The American Assn. of Retired Persons, which commissioned the survey, warned that older investors' lack of knowledge might leave them unaware of potential conflicts of interest that could make brokers work against them.

Women age 50 and older in particular "have serious gaps in their understanding of the [broker] compensation system," said the study based on interviews with 827 people in that age group who have securities investments.

The survey came a few days after Arthur Levitt Jr., chairman of the Securities and Exchange Commission, threatened to clamp down on broker pay practices--such as higher commissions for higher-risk investments--that can create conflicts of interest.

Among the findings of the AARP survey:

* About one in three older investors (36%) knows that higher-risk investments often carry higher commissions for brokers selling them.

* More than a third (39%) do not know that their initial investment is reduced by the amount of the broker's commission. Nearly half the women investors polled (47%) did not know this, compared with 33% of the men.

* More than a third (37%) do not know that the term "load" refers to a sales charge. For the women, it was 53%, for the men, 25%.

* Nearly half (48%) do not know that the amount of commission a customer pays is negotiable. More than six in 10 women investors (61%) did not know, compared with 39% of the men.

* One-third (33%) do not know some firms use contests to promote the sale of a particular investment product within a specified period. For women investors, that jumped to 40%; for the men it was 27%.

The National Assn. of Securities Dealers, a self-regulatory group, has submitted a proposal to the SEC recommending, among other things, that sales contests for brokers be curtailed.

The survey, conducted by International Communications Research of Media, Pa., polled the 827 people age 50 and older between Nov. 14, 1997, and Jan. 4, 1998.

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