A NONPROFIT’S DISCOUNT STOCK-TRADING SHOULD BE PERFECT FOR PENNY-PINCHERS: ULTRA-CHEAPO SERVICE COMPETES WITH BROKERS

The National Association of Investors Corp. has launched a new stock-buying service for its members.

The Madison Heights, Mich.-based nonprofit, involved in investor education since 1951, has introduced the NAIC Stock Service through a Troy, Mich., broker-dealer. For an annual fee of $200, the service allows investors to make stock purchases of selected stocks for as little as 3 cents a share.

Robert O’Hara, vice president of development, says the association has been working on the project for two years. He says the service supplements the NAIC’s Low Cost Investment Plan, introduced in 1979, which allowed individual investors to buy as little as one share of stock in companies with dividend reinvestment plans.

it came from a cold call

“Since then, we have seen dividend reinvestment plans proliferate . . . but there has been a growing tendency for the corporations to keep increasing the minimum investment required to participate and to keep increasing their transaction fees,” Mr. O’Hara says. “In looking at that, we were wondering if there was some kind of service we could offer to keep costs to a minimum.”

NAIC wound up contracting with Troy-based Maverick Management Co. to run its new brokerage service. Mr. O’Hara says that Maverick, which administers corporate stock-purchase and stock-option plans, got the business through a salesman’s cold-call attempt to sell NAIC other services. Maverick has created a new broker-dealer, MMS Securities Inc., to run the program.

The plan thus far is restricted to the purchase of the 200 most popular stocks in last year’s survey of NAIC members, though Mr. O’Hara says more stocks may be added soon.

The plan has three levels: platinum, gold and silver. In the platinum program, a $200 annual fee allows an unlimited number of purchases at charges ranging from 8 cents a share for one to 500 shares to 3 cents a share for 1,501 or more shares. The cheapest plan, silver, has an annual fee of $36, but there’s a per-transaction fee of $8 on to
p of the per-share charge.

Mr. O’Hara estimates an investor making 100 stock purchases a year would pay an average of $1.80 for each transaction on the platinum plan, far less than the cost through a discount stockbroker.

Mr. O’Hara acknowledges the new service is in direct competition with stockbrokers, unlike most of the NAIC’s activities, which center on investment education.

“It’s going to be another option, in the same way trading on the Internet is, but the pressure’s already on everyone to reduce costs as much as possible,” he says.

Mr. O’Hara adds that the NAIC typically deals with “the entry-level investor,” who he says probably isn’t of interest to most stockbrokers. The typical NAIC-member investment club makes an average stock investment of only about $650 a month, or $45 a member. Both those numbers are too low to attract many stockbrokers, Mr. O’Hara says.

who needs a broker?

James Currier, MMS Securities president, also says investors still would need to use a broker to diversify their portfolios into such things as debt securities or stock options.

“We’re more for the beginner investor to get going without putting a lot of dollars into an account,” Mr. Currier says.

William Roney III, COO at Detroit brokers Roney & Co., says that while he has “a great deal of respect for the NAIC,” he believes investors still are better off using a traditional broker.

“With an admitted bias, I believe that when investing, particularly in individual securities, there is a strong reason to use a financial consultant, because of the myriad of investment choices today,” Mr. Roney says. “For the subset of people who are individual decision-makers, this (the NAIC Stock Service) may be a viable alternative to using a discount broker.”

NAIC has revenue of about $20 million a year from membership dues paid by individual and investment-club members, and from advertising in its monthly magazine, Better Investing.

NAIC has 35,000 member clubs w
ith 670,000 individual members.

Crain News Service