For the purpose of this site we are going to assume you are shopping for “discount” or as they used to be called “online brokers”.
However before we tackle this topic,a few words about full service brokers.What are full service brokers?.some would say they are relics of the ancient past before the brokerage industry was deregulated.
Back in the day(60’s-70’s),it was sop for brokers to charge 200$ to buy 100 shares of stock.Jim Cramer, among others has stated that this has a lot to do with the popularity of “buy and hold” investments with the older generation.;the fees ate up all the profits for small investors.
So the question arises..how do firms like Meryl Lynch,AG Edwards etc. survive,and actually prosper?.the simple answer is ;they make money for there clients.If they didn’t they would be out of business in the long run.
But what could be the advantage of dealing with such a company?,high fees and all.1)access to proprietary research of the firm.As a customer you will get the first chance to go long a stock before the research report is released to the general public.2)Chance to get in on IPO’s IF the firm underwrights.3)My accountant mentioned that the old line brokers go the extra mile to give you documents that make tax time less costly.preparing schedule d forms(profit and loss)can run into the thousands for a CPA if you are a trader.
That being said, if you wish to trade yourself without a angel on your shoulder,and do not want the sales calls from the broker you probably will not be working with a “full service broker”
Also,most “full service’ firms have rudimentary,and in some cases no online trading website.
Obviously these firms feel the brokers sales staff should “sell”the client on the investment idea,so they have no reason to let the client pick entry/exit points on there own.
This is the easiest part for most people to understand.However there is such a mind boggling array of them.
The best way to find these is on the website of the broker,calling customer service may connect you with a 20 yr old working a summer job who really isn’t that interested,and probably doesn’t know these fees buried in the fine print.
You may have to go to the site map to navigate to where they are hiding,but unlike some other stuff we will talk about later,they are usually somewhere.You know the fancy ads you see on TV or in the business magazines?
They always tout the trading platform with terms that resemble a sports car ad”powerful”;”fast”;”best in class”;even”Turbo”.What about “how much?”.That’s buried in the fine print on page 10.
Before we go any further,however,lets talk about the platforms available.Most brokerage trading platforms are of two types;The first and basic type is web based,meaning it is simply a page on the brokers website that you log into, to buy and sell your securities.
The second type is the one on the first page of the brokers website and on TV,that sounds like a sports car ad.
These are usually(some brokers now have premium web based platforms also)software based,meaning you download and install them on your home computer.
Before we go any further,lets talk about what your doing.The premium trading platforms feature stuff like Level ll quotes,and order routing,streaming charts,acess to premium newsfeeds like Bloomberg and Dow Jones.Be realistic.
If you are not trading you probably don’t need any of this stuff.I mean you can get very good free charts from Yahoo.com or CNBC.com.,as well as news.CNBC TV is on most basic cable plans.
So the premium features are nice,and we’ll take um if they are really free,but we don’t wan’t to pay extra for them,unless we are trading.
The basic platforms have the advantage of usually being free,and competition has driven the Brokers to offer some fantastic deals to the small investor.
Many feature no account minimums,no activity minimums(meaning must trade a certain amount/month),and offer competitive interest on cash left in the account,as well as check writing,credit cards,bill paying.Hey wait a minute!!!! that’s a better deal than my bank!!!.
Obviously to compare the various terms it would be nice to have an objective spread sheet showing the individual brokers fees and policies,but since we don’t have that lets use the next best thing;Barrons Magazine publishes an annual “broker survey”.which tries to do this,and even assign rankings to the “best”to”worst” brokers.
I myself have used this to shop for brokers,and have found that while helpful,it leaves out a lot of the “got chaa” stuff;which is why I started this website.It must be challenging to maintain journalistic objectivity in a publication that runs 50 pages of broker ads/week.
In fairness to Barrons,there is so much to cover,and so many brokers(the cynical would say “so little incentive”),that it would take a month full of magazines to start to cover the subject.
Fees..It’s in how they are applied.Obviously all brokers are going to have fees;but you need to watch how they are applied.One sample;a broker I was checking out had a “$1 cancel replace fee”.What does that mean?.lets say you have an offer to buy @25$ and the stock goes to 25.5,you raise you bid,now you pay an extra buck commission.
I realized quickly that I often cancel replace multiple times chasing breakouts..This broker was not for me!.The $7 trades in the BOLD print would end up in practice being far more.Sometimes the most obvious is not apparent, reading the fine print.Was that cancellation fee a one time charge for each order cancel replaced?or each time the price was changed?;
In the above example it turned out it was each time the price was updated.So if you changed the price 10 times it would be ten dollars extra!!.Another example many brokers charge for taking money out of the account.Strangely none do for deposits(LOL).
If you plan on using your account for bill paying etc.check carefully how these are applied.If you are not sure from reading the fee page call and ask for clarification.If it seems like the representative is “telling you what you want to hear”,demand to speak to a supervisor,and WRITE DOWN THERE NAME AND WHAT THEY TOLD YOU.
Even Better ;record the conversation if you can Once the account is opened and you see a charge that doesn’t seem right no one will know what your talking about.The point is ;read the fee section carefully.Even the easy stuff can trip you up.
Even Better ;record the conversation if you can
Once the account is opened and you see a charge that doesn’t seem right no one will know what your talking about.The point is ;read the fee section carefully.Even the easy stuff can trip you up.