No question is more frequently asked by investors than this:

"How shall I purchase bonds? Where shall I buy them, and how am I to go about it?"

Don't invest money with strangers unless you first look into their standing and record. There are countless swindlers and fakers who make it a business to worm their way into the confidence of persons with money to invest. Often, too, it is a safe rule not to combine business with friendships and relationships. Friends may mean well, but too often they are carried away by business enthusiasm. Many exceptions to this statement probably suggest themselves, but I think it is at least wise to check up with a wholly outside and disinterested opinion any advice that a personal friend or acquaintance gives on financial subjects.

In a general way there are three agencies through which bonds may be purchased. Often the bank or trust company where one keeps an account will arrange to purchase securities for a customer. The bank must ordinarily do this through a broker or dealer, except in the relatively few cases where it maintains a bond department of its own. Then, there are the brokers, both those who are members of the stock exchange, and those who have no such affiliation. Finally, there are the dealers that call themselves investment bankers.

The broker and the investment banker may often be one and the same person. The distinction, however, between the two classes is not a difficult one to understand. A broker is a mere agent, one who acts for another. The investment banker, on the other hand, does not necessarily merely buy securities on behalf of the customer, either on the stock exchange or off, but often virtually creates the securities and offers them for sale as a principal. That is, he buys a large block of bonds directly from the corporation, and usually secures representation on the board of directors and keeps an eye on the management. In actual practise many of the larger investment banking firms are also members of the stock exchange and do business both as dealers and brokers. They deal in bonds on one hand, and on the other, through the exchange membership, are enabled to buy and sell stocks.

The main point is that the intending investor should form a connection with an investment banker of high reputation, ample capital and much experience. It makes little difference whether the investment banker is a member of the stock exchange or not. There are enough risks in the investment of money, even when one deals with the strongest of firms. Don't add an unnecessary peril by dealing with any other kind.

It is a great mistake to assume that investment banking is solely a commercial activity. The relations of the banker with his customer have been changing from that of seller and buyer to the most intimate relationship of confidential adviser and client. The banker acts in a fiduciary capacity, almost in that of a trustee. Investment is about as complicated as law or psychology, and yet the average person will place hard-earned savings rashly and without advice. Formerly investment was a simple matter. Originally there was only real estate or one's own business to consider. But now there are all manner of companies about which the individual can hope to know little.

Not only must the investor choose which general character of business he wishes to place his savings with, but he must determine the soundness and merit of the particular company. However desirable it may be for the individual to study such subjects as corporation law, corporation finance, management and administration, accounting, engineering and banking, it is none the less impossible for most persons to master so much knowledge. The well established investment banking house employs experts along all these lines, and satisfies itself as to every phase of an issue of securities before recommending them to its clients.

It is not merely the expert guidance which a house of long and diversified experience, successful records and ample facilities has to offer: it is the moral responsibility which such firms are more and more assuming.

The investment banker usually keeps in touch with the property whose bonds he has sold as long as the bonds are outstanding; and often, by advice or moral pressure or some other influence, he is able to prevent ill-considered action, on the part of the owners of the property, that might prejudice the standing of the securities. Thus he not only must assure himself that the bonds are good when he buys and sells them, but that they will continue safe under whatever conditions may arise. Finally, if the corporation is overtaken by misfortune, the banker will be in a position to aid it financially, or to demand that his clients be treated fairly by the receiver.

There are eleven hundred members of the New York Stock Exchange, and several hundred of these accept business from outsiders. There are perhaps thirty other reputable stock exchanges in the country, the especially large ones being those in Boston, Philadelphia and Chicago. Perhaps as many as five thousand different dealers will buy and sell bonds. Thus it is extremely difficult for an uninformed investor to pick out a broker or an investment banker. In choosing a New York broker or investment banker, the first step to take, if you live elsewhere, is to ask your local bank to write to its New York correspondent for information. This is by far the best method of getting a line on any broker, and your bank will be glad to do such a small favor for you. Even if your bank-account is only a few hundred dollars, do not hesitate to ask this business favor. All large investors do it, and there is no reason why you should not take the same measure of precaution.