As they seem to be all over the television every day you’ve probably seen ads that feature a very well-dressed stock trader out on the links, golf club in hand, bragging to the camera about the piles of cash that he’s been making. Maybe you’ve seen the one with the moving truck driver talking about the fabulous house he bought his wife with the huge pile of dough he made from day-trading. These commercials are hardly subtle and what they’re saying is that basically there is no need for guys like you and me to hire someone ‘professional’ to invest our money.
The simple fact is that on Wall Street today there’s a revolution taking place that’s been underway for about the last 10 years and it’s a showdown between high fee brokers and brokerage houses and discount online brokers in an all-out tug-of-war for their clients investing dollars. The question many new investors ask is simply this; “if even Merrill Lynch has gone discount and lowered fees for many of their services, why would I want to pay a broker big bucks to do it when I can do it myself?” Simply put, with companies like a SureTrade or Datek offering transactions for less than $10, why would someone even consider a full service brokerage house?
In reality what full-service brokers have done is leaves the door wide open for discount brokerage houses to come in and sweep up after the mess they made, failing to deliver the value that they promised and creating many horror stories about unscrupulous traders who convinced their customers to either buy or sell what they shouldn’t have in order to simply generate more fees. Even worse are the ones that, due to the higher commissions, sell their customers a bunch of inferior in house investments with returns that are mediocre at best.
On the other hand there are definitely brokers out there that not only gives excellent counsel but do exactly what they say they’re going to do and provide excellent returns on their recommended investments. Not only that but their counsel can be invaluable if you’re a new investor who either lacks experience or doesn’t have the time to research on your own.
In reality this competition between full-service and low to no service brokers has actually been able for investors who have ended up getting improved customer service at lower costs. If you’re trying to decide on which side of the fence you’re going to land here are a few things that you’re going to need to consider.
- Merrill Lynch, Salomon Smith Barney, Prudential.
- Higher commissions and higher fees.
- A higher and wider range of services and amenities.
- Solid financial advice that can save you when the markets turn choppy.
- Full and in-depth research.
A full-service brokerage can offer you beautiful funds, estate planning services and tax advice as well as set up a financial profile based on your goals income and assets, advising you appropriately based on those factors. If you’re keen on buying individual stocks and don’t have the experience or time needed to do the required research yourself you’d be best to find a good broker to help you. .
Of course even if you have the money required to do this you’ll still want to get their commission schedule and find out exactly the kinds of fees that you going to have to pay as well as knowing exactly how your broker is going to get paid. This will not only clue you in on what your costs are going to be but also let your new broker know that you’re not going to sit idly by while they rack up expenses on you.
- Much lower fees and virtually no commissions.
- A much smaller range of services and amenities if any.
- Little to no advice.
- Basically no research whatsoever.
The fact is, with a discount broker you’re not going to get any advice, you’re not going to get any research and you’re certainly not going to have anyone to hold your hand and lead you down the right path. In some cases the problems that people face with online brokers include hour-long waits for customer service, servers that are completely clogged up and missing checks that have a habit of not arriving.
If you have some experience with investing there’s a good chance that you can use a discount broker and make a lot of testing decisions on your own. Frankly, if you can, why not get the stocks you want as cheaply as you can? On the other hand there are some discount brokers (Charles Schwab and Waterhouse securities come to mind) that have been adding account management services and advice services as well as beefing up their mutual fund offerings. They might not be as dirt cheap as their pure online competitors but they’re not nearly as expensive as most of the full-service brokers are either and, as such, may be worth a look.
The choice of course is completely yours. We favor the middle road with a company like Charles Schwab that offers some basic services and advice at a competitive rate. That being said, if you have hundreds of thousands of dollars in the stock market you have probably done it using a full-service broker or you just happen to be a market genius. Either way you probably already have a set routine for what you’re doing and don’t really need our advice. (As a matter of fact, give us a call and give us some advice.)