Full-Service vs. Discount Broker — What's the Difference?
When to Consider a Discount Broker
Let’s be honest. The current financial environment makes most people leery of paying a broker’s full-service commission. So, if you want to make your own stock trades, a discount broker might be your best option. For most brokers, this means you’re missing out on things like:
- Well-trained and experienced representatives
- Fidelity to your personal financial needs
- Full-service financial advice
- Industry research and analysis
- Expert IRA advice
However, one of the great things about a discount broker is that it gives you the freedom to choose your own investment criteria. In addition, you don’t have to feel like you’re on an assembly line, and you don’t need to pay somebody to get you to a certain place. It is important to remember that a discount broker will usually limit the number of stocks that they have to choose from because of the limited number of stocks. Some stocks limit your investment ability due to the fact that you can only buy or sell a certain number of shares or holdings.
When to Consider a Full-Service Broker
In exchange for continuing education and commission, full-service brokers provide clients with the complete range of services that include everything from investment advice to account maintenance to portfolio selection. If you are just starting out and are not entirely sure what you need or want, or if you are looking for direction and guidance, a full-service broker may be the better choice.
Many full-service brokers also have additional financial planning services such as estate and retirement planning, college savings plans, etc. Full-service brokers are not required to have financial credentials in order to register with FINRA, but some do have them in addition to their sales licenses. Most of them also work with independent investment advisors (IIA) … i.e., independent brokers who work for the same broker-dealer but have additional credentials in areas such as financial planning, insurance or investments.
The downside of full-service brokers is that many of the services they provide are commission-based. They may also work with a variety of other broker-dealers, which can put your investments at risk. The upside is that they will try to service both you and your clients based on their expertise and experience.
Where Do Robo Advisors Fit?
Robo Advisors have been credited with the recent uptick in interest in online advice and in automated financial planning. Actually, I think that Robo Advisors are the brokers to watch. Their tech-driven approach, diversified portfolios, and preference for self-directed investors will likely continue to grow in popularity.
When shopping on a site where you can get discounted trade commissions online, don’t just check the price. Make sure that the discount broker will provide you the kinds of services you should expect as a beginner and as your investment portfolio increases.
Here’s my take on the differences among the types of brokers.
The one key thing to remember when buying a will is to make sure you not only trust the person selling it but also that you should be aware of the validity and what they are offering.
Do they work on a contingency basis where they get paid nothing unless you buy a will? Or do they get paid a lot of money and get a huge commission per will no matter what the outcome? There are a lot of scams out there so you have to be careful and go with your gut because your gut is always right in these situations.