When looking at a full-service broker, you will need to decide between a commission-based or a fee-based. Which is right for you?
What type of stockbroker you should choose depends entirely on how you invest and your needs for service. There are two broad categories of brokers: full-service and discount brokers. There are also many types of brokers that fall in-between the two distinctions.
Discount brokers usually process your order at a low cost. They don’t do anything but process your orders. If you don’t need advice, research or other services, this is a good option for your trading needs.
However, if you do want all the extras — and will use them — a full-service broker may be the better choice. There are two types of full-service brokers: commission-based and fee-based. And as with everything else, there are some brokers that combine the two types of services into a hybrid arrangement.
The difference in cost between a discount broker and a commission-based, full-service broker can be significant. In fact, the prices can quite different even between two firms of the same kind. For example, one discount brokerage may charge $30 per trade, while another charges $5. Remember, you usually get what you pay for. The higher price usually means faster execution and better service. Shop around wisely and compare many different brokerage firms before you open an account.
Fee-based brokers charge their customers a flat fee for most services, including: research, recommendations, trades and other financial services. The fee and the services will vary from firm to firm.
Usually, the client is charged a percentage of his or her assets under management. This percentage is on a sliding scale depending on the size of the account. The more assets you have, the lower the percentage you are charged. Most brokers bill client accounts on a quarterly basis.
Investors that will use the research and recommendations of the brokerage often benefit from the full-service broker. Those that trade quite frequently and use the services regularly may benefit from a fee-based broker. One flat-fee will cover everything. The investor doesn’t have to worry about the cost of each individual trade or the use of each service.
Keep in mind that different brokers do not offer the same tools, research and perks to their customers. Some feature great Internet perks — allowing you to log on and print out an analysis of your portfolio, view your account balances and check your gains. Others won’t offer all the online features, but have excellent research that isn’t found elsewhere. Make sure you check out the execution time on trades.
Before you open an account, look at all of your options. If you are a heavy trader who likes all the extras, a fee-based trader may be right for you. Shop around and consider all of your options before you decide.
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