Choosing a Broker
No matter what kind of investments you want to make, any broker you choose is going to take on great responsibility by handling your money. To ensure that you make the right choice, there are things to understand about a broker’s role and things to look for in the firm you choose.
Types of Brokers
There are two types of brokerage firms: traditional (or full-service) and discount. A traditional broker is a person who actually manages your account, providing advice on investment opportunities and planning all your money management with you, as well as executing trades for you. Discount brokers usually only carry out your trades, and some discount brokerage firms are almost completely hands-off—you may never meet the person or people who carry out your orders. The tradeoff is that discount brokers charge a great deal less for their services.
How Brokers Make Money
In a typical trade, your broker will charge a flat fee, plus a commission on any sales you make. Most of the services offered, including transfers of funds from your brokerage account, will have a nominal charge attached, and you may also incur regular maintenance fees (quarterly, annually, and so forth). These pay structures work in both your favor and the firm’s favor: the brokerage firm wants to hold your money in your brokerage account so they have capital with which to operate, and the commission scale ensures that your broker is working in your best interests, because he doesn’t get paid if your investments aren’t successful.
Services to Expect
Most firms these days offer some sort of online access to your brokerage account, if only to view your current holdings and pending trades. Many of them—especially discount brokers—will let you submit trade orders online 24 hours a day. Convenient access to a wealth of information regarding your investments is the most important service a brokerage firm can offer you, the investor. To that end, other things to look for are company profiles (since your broker should be doing the research for you) and comprehensive statements. It’s no good having a lot of information if you can’t understand how it’s presented.
Above all else, if you decide to go with a traditional broker, make sure you get to know the person. Schedule appointments to discuss your investments face-to-face, and make sure you have a phone number for getting in touch with him or her.
