Do you need a broker: Here are some pointers on when and how to use a full-service or discount brokerage firm.

Once your club decides on its basic investment objectives, it's time to decide if you'll need a broker. Brokers come in two flavors. full-service and discount brokerage houses. Full-service brokers, such as Merrill Lynch and Dean Witter Reynolds, offer advice on which stocks to buy and sell, and provide investment resources. Discount brokers, such as Charles Schwab, essentially offer do-it-yourself investing; they don't make stock recommendations or provide analyst reports.

While you won't get any hand-holding from a discount broker, they are cheaper than a fill-service one. Full-service brokers charge commissions ranging from 1.5%-3% per trade - that's $30 off the top of a $1,000 investment. However, the larger the investment, the smaller the commission. Discount brokers, though, will apply the same fixed fee every time you purchase stock. These firms may charge anywhere from $19-$40 per trade.

Since its beginning 10 years ago, the Unity Investment Partnership in New York City has purchased stocks through Charles Schwab. "Since we were evaluating the stocks ourselves, we felt we didn't need to use a full-service broker," explains Unity's President and co-founder Lillian Heard.

While the club has an education committee that produces stock reports, any member can make an investment presentation. The club's stock portfolio, valued at $90,000, features some 16 holdings, including Pfizer, Pepsi-Cola, the Walt Disney Co., Colgate-Palmolive, BET Holdings and American Power Conversion Corp.

"We used to think you had to have thousands of dollars to invest in stocks," says Heard. "But we are each putting in $35 a month to buy stocks." All but one of the founding members are still with the club. Many of them, like Heard, who formerly worked with the Department of Social Services, are retired and are investing to create a nice nest egg.

Once you begin investing in blocks (shares of 100), the discount on commissions becomes more significant, explains Thomas E. O'Hara, chairman of the National Association of Investors Corp. (NAIC) in Madison Heights, Michigan. Minimum commissions are often the same for discount and full-service brokers, he adds.

Some clubs sidestep brokers altogether and invest entirely through NAIC's Low Cost Investment Plan. Clubs start out with a single share of the stock they want to buy, paying NAIC's one-time sign-on fee of $7. The first share is purchased from NAIC. Thereafter, groups must deal directly with the individual companies or their agents, including blue chips like Kellogg, Quaker Oats, Motorola, Mobil and Upjohn. The downside is that you can invest in only a limited number of companies through NAIC.

In addition, more than 1,000 companies allow investors to buy single company shares through dividend reinvestment plans (DRIPS). Rather than paying out dividends, DRIPS automatically reinvest your stock dividends to purchase more company shares. Even better, many companies offer discounted shares through DRIPS, taking 3%-5% off a stock's trading price.

CHOOSING A BROKER

If you have the time and discipline to research and follow stocks, then your club could get by using a discount broker, says Simone A Thompson, account executive in investments with Dean Witter Reynolds in New York City. "However, many clubs do a great job at choosing which stocks to buy," she says, "but they will overreact to rumors or stock fluctuations and sell a stock [sometimes at bargain basement prices] when they should hold on to it." Thompson works with three investment clubs, one of which consists of investors all in their 20s. "A full-service broker can help guide your club," she advises.

In your search for a full-service broker, find someone who has worked with investment dubs before and understands the general philosophy and inner workings of these investor groups. You want someone who will take the time to listen to fellow club members, attend meetings and educate club members on the ins and outs of investing.

Brokers should have "a high level of patience in working with investment clubs," says Walter L. Clark, vice president of investments with Gruntal & Co. in Baltimore, and understand that their job is to help your club achieve its overall goals. "Some brokers try to take over, others are very passive. You don't want either of these," says Clark, who is an advisor to the Washington Women's Investment Club. "You want someone who knows how to make recommendations but allows members to pick their own stocks."

Indeed, investors should decide which stocks to buy or sell. The broker is there to provide information on the stock, carry out the transaction and educate members about the market and certain industries. To find a broker, get referrals from other clubs or from NAIC regional council presidents.

Once you choose a broker, make sure that authorization is given to designated dub members who will be placing buy/sell orders. All members must sign an agreement when the account is opened. The financial officer should be responsible for sending checks to the broker.

Pay on time. If the money doesn't reach the firm three days after the buy order, your dub may be fined or penalized and put on a restricted list. In other words, you'll have to pay upfront before the broker can accept any of your club's orders.

Next month, BE will offer some advice on running meetings and tracking your investments.