Hacker 2/HACKER2.mdf/secrets/ch17.txt

Text File | 1995-01-03 | 8KB | 133 lines

              BANK WITH A BROKER FOR A LOW COST PACKAGE DEAL

               Many stock brokers offer money management accounts
          (under various names such as asset management account,
          cash management account, etc.) which provide a whole
          package of services at a low annual fee.  At a minimum
          these including a money market fund, checking and
          margin loan access.  A margin loan is a loan secured by
          securities.  It can be used to buy other securities,
          but it can actually be used for any purpose.  Interest
          rates on margin loans are the one of the lowest cost
          loans you can get anywhere.
               Most of these accounts offer additional services
          such as a Visa or MasterCard (or sometimes American
          Express) as a debit card against your account balance.
          Charges are taken from cash or money market funds
          first, and then from an automatic margin if the loan
          exceeds the cash available.  Money in the account is
          automatically invested in a money market fund until you
          use it -- thus dividends received on stocks in the
          account will have same day credit and earn interest.
               Using a credit card against a brokerage account as
          such may be reckless, but if you handle your money
          properly there are many advantages to these accounts.
          You can use the account as your principal checking
          account, keep most of your money invested, never worry
          about an overdraft, use your debit card as a plastic
          check (a blessing for emergencies in strange places
          where a personal check would be useless), and have all
          your record keeping done automatically.  But the
          instant liquidity factor (through margin loans) can be
          a lifesaver in a major emergency -- no explanations, no
          credit checks, just write out a check for whatever it
          is that has to be done.
               Many of these accounts have a $20,000 initial
          opening balance requirement, but not all of them.  Here
          are some of the more interesting ones:
               K. Aufhauser & Company Inc. offers the ProCash
          Plus Account.  They are a deep discount broker.
          Minimum equity in the account has to be $10,000 --
          that's equity, not cash, so you could transfer an
          existing portfolio of stocks or bonds.  They offer a
          MasterCard which gives you access to cash at 76,000
          cash machine's worldwide, free unlimited checking, and
          of course the margin loan access.  Call [phone]
          and ask for an information kit and account application.
               Charles Schwab & Company offers a similar service
          with no annual fee, but with a $5,000 minimum balance.
          They call theirs the Schwab One Account.  They have
          branches in many cities, but if you can't find one
          locally, call them at [phone].  About 200
          different no-load mutual funds can also be purchased
          and kept in a Schwab One Account.
               Fidelity Investments Discount Brokerage offers the
          Ultra Service Account with a $5,000 minimum and no
          annual fee.  Call [phone] for information and
          account forms.
               Merrill Lynch was actually the inventor of this
          type of account, with the introduction of the Cash
          Management Account (CMA) nearly 15 years ago.  That
          account has a $20,000 minimum.  But they have two new
          versions.  One is called the Capital Builder Account
          (CBA) with a $5,000 minimum.  They also offer a
          business version called the Working Cash Management
          Account (WCMA) with a minimum balance of $20,000, and
          WCMA-II with a minimum balance of only $2,000, which
          could be perfect for your small corporation.  (WMCA-II
          does not include a Visa card.)
               All of the Merrill Lynch personal accounts offer a
          Visa debit card (which can be used at 98,000 cash
          machines), checking, and of course, margin loans.
               They also can accept direct deposits, if you have
          an automatically deposited payroll or Social Security
          check.
               The Merrill Lynch accounts are also available for
          estates and trusts.
               Contact your nearest Merrill Lynch office for
          information and account application forms, or call them
          at [phone].

               Another major advantage of these package accounts
          with brokers is the ability to leave mutual fund shares
          in them.  That may not seem important, but if you have
          ever tried to quickly sell a mutual fund share directly
          you will appreciate the advantage of leaving it in the
          brokerage account.   You may have realized that taking
          physical delivery of the mutual fund shares would
          create problems, and left the shares in a statement
          account at the fund.  But did you ever read the fine
          print in the prospectus about redemption procedures?
          At the least you will have to get your signature
          guaranteed by a commercial bank, and submit the
          guaranteed redemption letter.  A check will then be
          mailed -- in due course.  Note that we said commercial
          bank -- a notary is not acceptable, nor is a savings
          and loan.  With the asset management account from the
          brokerage firm, the shares are redeemed immediately and
          the proceeds placed in your account ready for you to
          access through any of the means the account offers.
          And they'll be earning interest until you do access
          them.
               If you own T-bills, there is an advantage in
          leaving them in one of these brokerage accounts.  Not
          only do you have free safekeeping and ready delivery if
          you want to sell, but they are good for collateral of
          90% of face value.  This gives you margin call
          protection if you are trading stocks on margin, or you
          can use the T-bills to finance a fast stock trade.  And
          you have an instant line of credit, accessible by check
          or debit card, should you need emergency money, or
          money for a business deal.
               When opening one of these brokerage accounts,
          always sign the papers for a margin account, even if
          you never intend to use it.  There is no obligation to
          use it, but the whole point is to have the ability
          instantly in an emergency -- not a week or more after
          you've had to revise the account paperwork, which may
          have to be sent to the firm's head office.  Flexibility
          is the word here.
               Send stock certificates unsigned by registered
          mail.  That way they are not negotiable.  Then in a
          separate letter, preferably not even on the same day,
          mail the broker a stock power form with your signature
          and the number of shares in the transaction, which
          authorizes the broker to sell the stock or transfer it
          into your account.