[Infowarrior] - Boiler Room, Meet Mail Room

[Richard Forno]

September 8, 2011, 10:00 AM ET
Boiler Room, Meet Mail Room
By Josh Brown

http://blogs.wsj.com/financial-adviser/2011/09/08/boiler-room-meet-mail-room/

Do you know anyone in the infomercial business?  Go ask them how they can possibly give away “not one, but TWO!” of each item, be it potato peeler or miracle meatslicer.  The answer is that they make all their profit in the “shipping and handling” figure.  By throwing in a second item “for free” they get to charge that $9.95 S&H fee twice.  Get it now?

So there ya go, you’ve learned something today…now keep that to yourself so Judy the TIME Life operator doesn’t lose her job and add to the already out-of-hand unemployment epidemic.

Anyway, some of the last remaining transactional retail brokerage firms have learned this trick as well and they’ve used the old handling fee game to pad the amount of revenue they get from each customer transaction (as if it really costs $70 to regular-mail a trade confirmation in the continental United States).

Finra caught on and yesterday announced total fines of almost a million dollars against some of the firms who were adding exorbitant handling charges onto stock trades that they were also taking commissions on (yes, amazingly there are still people paying stockbrokers full service 3% commissions in 2011 — I know).

From Financial Planning:

"In its ruling on the five brokerages, Finra characterized their postage and handling fees as “far in excess” of the handling-related service the firms provided. In some cases, brokerages hit customers with handling fees of almost $100 per transaction, earning a “substantial percentage” of their revenue from the fees. The fees were charged in addition to commissions."

There is no industry standard on postage and handling fees, say brokerage operations executives unrelated to the cases. Some firms charge as little as $3 per transaction while others charge more than  $50.

Let me give you a hint, civilians: If you are paying full service commissions for ordinary stock trades topped with $100 “handling fees” on each transaction, your broker better be named Warren Buffett.

I’m gonna go make some popcorn…I can’t wait to see what these firms come up with next.