Tuesday, March 03, 1998

The Daily Workshop Report
by Robert Sheard (TMF Sheard)

LEXINGTON, KY. (March 3, 1998) -- The deep-discount gauntlet has been thrown down once more. If you've watched CNBC broadcasts of late, you may have noticed a new campaign of advertisements from George Brown & Co. touting a new low-ball commission structure.

First, let me say that neither I nor the Motley Fool endorse any so-called official Foolish broker. Since part of the Workshop's goal is to show investors how to minimize costs, however, let me review the new George Brown & Co. set-up, because it has some interesting elements. I don't have personal experience with Brown & Co., so I'm only reporting what I was able to glean from their web site (www.brownco.com).

The new commission rate at Brown & Co. is $5 for any market order up to 5,000 shares (listed and OTC stocks). For a limit order, the rate is $10 per trade. (Over 5,000 shares, the rate switches to a price-per-share schedule.)

The interesting thing about the new $5 rate is that it's available regardless of which way you trade -- on the Internet, using one of their two automated telephone systems, or talking to a live broker.

Brown & Co. also offers some of the lowest margin rates in the industry. For balances under $50,000, they charge the current broker's call rate (currently 7.25%). The rate gets progressively lower as one's margin balance gets higher, down to a low of 6.25% for mammoth margin balances ($1 million or more).

Now for the catches -- they're to be expected, I suppose, with Brown & Co.'s rates being about half what their competitors charge. First of all, the minimum opening account requirement is $15,000 (although you don't have to keep that minimum once your account is open). The minimum for IRAs is $5,000.

In addition, you must meet a few other "tests" to qualify for the account. One is that clients must have at least five years of investment experience. In addition, clients must have a net income of $40,000 or more and a net worth (excluding one's home) of $50,000.

For investors who qualify, it seems like a pretty attractive plan, even for something as simple as the Dow approach. (There's no penalty for an inactive account.) Unfortunately, investors with small portfolios or who are just taking control of their own investments won't "qualify" for the account.

But if we think back only two or three years ago, the low-ball rates were in the $20 - $25 range per trade and minimum account requirements were generally around $5,000. Today, several brokers have dropped below the $10-per-trade barrier and some even waive all minimum account requirements. Don't be surprised if this volley by Brown & Co. sets off another shock-wave of rate revisions. All in all, it's good news to see long-time brokers (Brown & Co. opened in 1960) recognizing the needs and power of the individual investors. The world is indeed changing. This is just one more sign of it. Fool on!

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