October 25, 2006 10:27 PM
The Difference Between Full Service and Discount Brokerage
When it comes to choosing a brokerage, you will have to decide between full service or discount.
The difference is basically in the amount of money you pay and the amount of help you receive in making decisions. A full-service brokerage firm will offer you every imaginable financial service. You will find everything from professional advice to even tax preparation. But you will pay for it. All of these services cost money, which you pay in high commissions.
A discount broker does not offer you all of the extras. Therefore, you pay significantly less in fees. Many people do quite well with discount brokers, and manage to save money as well.
Many people out there are cautious when dealing with a broker. I think that this is good. You should always be careful when handing your finances over to anyone. Make sure that you choose the right broker for you. You should feel as if the broker is acting in your best interests. That means that you don't feel pressured to make trades that you don't want to.
One of the best ways to start a relationship with a broker is to be upfront from the start. Remember, you are the boss here. Tell the broker your financial goals and make sure that your instructions are followed. Watch your account for excessive trading, which can cost you. Watch to make sure that you are making money. That is the number one sign of a good broker.
When you use a broker, you should see a return equal or better than the return on the S&P 500 Index. If you aren't, you would be better off cutting out the commissions and investing directly into a S&P index fund.
If you are already a good customer with a full-service broker, you can always ask for a discount on your fees. The worst the broker can say is no. If your account is a good one, many brokers are more than happy to adjust their commissions for you. Most full-service brokers feel the competition from discount brokers and are willing to compete.
You have to look at what you need out of a brokerage. If your financial situation is one in which you would really utilize a full-service brokerage, then that might be the right decision for you. But the key is making sure that all your needs will be met by the brokerage. You want to get your money's worth.
When you first meet with a full-service broker, you should ask a few questions:
How much do you charge to invest my money? Ask about wrap accounts, commissions and fee-based accounts attached to asset size.
Do you have a good research department with a good track record?
Do you monitor your brokers? You can always ask ot see the conduct record of the brokers to see if they are disciplined.
Do they provide on-line services?
Can I see a sample statement? You want to make sure that the statement is easy to understand.
Keep in mind that discount brokerages don't mean that you will make less on your investments. You simply pay less because there are fewer services. In some cases, you will pay 90% less. Discount brokers do not give investment advice, though many do provide research reports from experienced analysts. They are available to contact 24 hours a day and many have a strong Internet presence.
04/22/07 | Vonage: IPO to Bankruptcy in One Year?
04/22/07 | Foreign Markets Provide Better Diversifaction Now
03/03/07 | Finance Market Commentary, The UK Flavor
02/13/07 | 10 Tips for Value Investors
02/09/07 | Managed-Futures Funds Available To Small Investors Soon
02/06/07 | What Is Mortgage REIT?
02/01/07 | Exxon Mobile Is Minting Money
01/29/07 | The China Stock Market Is Red Hot
12/14/06 | Common Misunderstandings of Stock Market
11/28/06 | Bank of America Surpassed Citigroup in Market Cap
11/26/06 | Is Anheuser-Busch (BUD) A Buy?
11/25/06 | How To Buy QQQQ Without Commission
11/16/06 | Kraft (KFT) Spin-Off At Altria (MO) Is Near
11/04/06 | Stock Holdings By Our Congressmen
11/03/06 | What Does A Democrats' Win Mean To Your Financial Life?
11/01/06 | Warren Buffett Loves Retailing
11/01/06 | Six Banks May Receive Triple-A Credit Rating
10/31/06 | The Cash Machine at Exxon
10/31/06 | Wisdom from Value Investing Legend Christopher Browne
10/28/06 | Invest With Margin Loan? Use It At Your Own Risk
10/27/06 | Basics of Option Trading
10/26/06 | What Is Buy-And-Hold?
10/25/06 | What Is P/E Ratio?
10/25/06 | Profitting From Penny Storys
10/23/06 | Go, PPD, Go!
10/22/06 | Should Microsoft (MSFT) Buy Yahoo (YHOO)?
10/22/06 | The Priceless Heart Attack
10/21/06 | Berkshire Hathaway And Its $100,000 Stock
10/20/06 | The World's Biggest IPO: Industrial & Commercial Bank of China (ICBC)
10/17/06 | Bill Gates' Successful Drug Investment
10/14/06 | Is BofA's Free Trading Program A Good Deal?
10/11/06 | What Is A Unit Investment Trust (UIT)?
10/11/06 | Visa Is Contemplating IPO
10/11/06 | Google Docs & Spreadsheets: Word and Excel From Google
10/10/06 | Will Fed Continue To Hike Interest Rates?
10/10/06 | MSN Money: 50 Best Stocks In The World
10/10/06 | Big Tobacco Companies Spending Big To Fight State Taxes (RAI, MO)
10/10/06 | Stocks With Dividend Growth Potentials (GE, MSFT, NI)
10/10/06 | Silver Linings Of Housing Industry (DHI, PHM, CTX, LEN, KBH, MDC, MTH)
10/09/06 | Berkshire Hathaway (BRK) Adds Its USG Corporation (USG) Stake
10/09/06 | China's ICBC On Track To Complete The Largest IPO, Ever
10/08/06 | How To Select Your Broker?
10/08/06 | What Is Day Trading?
10/08/06 | How To Get Corporate Reports?
10/08/06 | How To Avoid Internet Investment Scams
10/08/06 | Major Advantages Of Options Trading
10/08/06 | Basics of Stock Option Trading
10/08/06 | What Is A Stock Split?
10/08/06 | What Is A Reverse Split?
10/08/06 | What Happens To A Company After Bankruptcy?
10/08/06 | Hedge Short Selling Losses By Call Options
10/08/06 | 40,000 Starbucks (SBUX) Stores?
10/06/06 | Google (GOOG) To Acquire YouTube?
10/06/06 | How Mid-Term Election Will Affect Drug Companies
10/06/06 | Berkshire Hathaway (BRK) Breaks $100,000
10/04/06 | Is Qualcomm (QCOM) A Buy?
10/03/06 | Stocks For The Long Run: General Electric (GE)
10/03/06 | Stocks For The Long Run: FPL Group (FPL)
10/03/06 | Stocks For The Long Run: Anadarko Petroleum (APC)
10/03/06 | Stocks For The Long Run: J.P. Morgan Chase (JPM)
10/03/06 | Stocks For The Long Run: Burlington Northern (BNI)
10/03/06 | Stocks For The Long Run: Procter & Gamble (PG)
10/03/06 | Stocks For The Long Run: Applied Materials (AMAT)
10/03/06 | How To Make A Fortune In The Stock Market?
10/03/06 | Stock 101: Market Order, Limit Order And Stop Order
10/03/06 | What Is Dow Worth Today?
10/03/06 | First Data Spins Off Western Union
10/03/06 | The Motley Fool To Measure Stock Pickers
09/30/06 | Bank of America: Interest Rate Play
09/27/06 | Investment Managers Thinks U.S. Stock Markets Undervalued
09/26/06 | Microsoft To Broadcast Concerts Online
09/25/06 | Judge Certifies Class-Action Lawsuit of "Light Cigarette" Smokers
09/19/06 | How To Pick A Stock Broker?
09/19/06 | Fortune 40: The Best Stocks To Buy Now
09/19/06 | How To Buy Stocks?
09/19/06 | Bottom-Fishing For Energy Stocks?
09/19/06 | Fantasy Investing: The Ugly Reality
09/15/06 | The Long Case for Pre-Paid Legal Services
09/14/06 | Full-Service Broker Or Discount Broker
09/12/06 | 14 Stocks for Retirement
09/11/06 | Just Purchased: ConocoPhillips (COP) @ $58.50