The Difference Between Full Service and Discount
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.
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