Picking Your First Broker By Jonas Elmerraji | Updated February 13, 2017 — 4:00 PM EST SHARE
Let's face it, you can't start investing if you don't have a brokerage account. As a young investor, selecting your ideal broker is often very different than it would be for older investors of the same experience level. Choosing a broker isn't all that different from choosing a stock – it requires a lot of careful contemplation, and not all brokers are right for all investors.
Before you make the decision of whether to go with a human broker or broker-reseller (see below), it's also worth investigating whether your first broker should be a robo-advisor. This field is moving fast ; How the Fidelity Go Robo-Advisor Will Compare will get you started. For background, read Pros & Cons of Using a Robo-Advisor.
Things to Consider Before you can choose a broker, you have to know who or what constitutes one. There are two types of brokers out there: those who deal directly with their clients (regular brokers), and those who act as intermediaries between the client and a larger broker (broker-resellers).
Regular brokers typically are considered more reputable than broker-resellers. That's not to say that all resellers are inherently bad, just that you need to check them out before you sign up with them. Regular brokers – for example, Scottrade, Capital One Investing and Fidelity – are members of recognized organizations such as the Financial Industry Regulatory Authority (FINRA) and the Securities Investor Protection Corporation.
Breaking it down further, there are distinctions between full-service brokers and discount brokers. As the name suggests, full-service brokers offer many more services to investors than discount brokers do, but these services don't come cheap. With a full-service broker, much of the legwork is done by the broker, who provides the investor with more one-on-one advice as well as individualized suggestions and research.
That's not to say that discount brokers leave much to be desired in the customer service department. In fact, many discount brokers provide the option to solicit a broker for advice on a trade with your existing brokerage account. The caveat to remember is that when you do execute that trade, you'll pay considerably more (usually in execution fees) after consulting an actual broker than you would with a regular online trade.
For younger investors, discount brokers are probably the best bet. Some people recommend full-service brokers for new investors, but it's probably not financially feasible for a young person to go with a more expensive full-service broker. Besides, today's online discount brokers are widely used and typically provide a vast array of tools for inexperienced investors who aren't sure about their next steps. Plus, assuming you begin slowly, you'll learn a whole lot more about investing if you do some of the work yourself.
Looking for the your first online broker? Check out our new Brokerage Review Center!
Trade execution fees are important, but there are other brokerage fees to consider, as well. If you're under 30, chances are you're limited by your budget. When it comes to investing at this age, looking at the fees that might apply to you is essential to ensuring that you make the most of your investment dollar. Here are some additional costs to consider:
Most brokers have minimum balances for starting a brokerage account. Typically, this number ranges between $500 and $1,000 with an online discount broker.
Margin While new investors might not want to open a margin account right away, it's something to think about for the future. Margin accounts usually have higher minimum balance requirements than standard brokerage accounts. It's also important to take a look at the interest that your broker charges when you make a trade on margin.
Withdrawal It's your money, but sometimes it's hard to get it out of your account. That's because brokers sometimes charge fees to make a withdrawal, or they won't let you take any money out if it will drop your balance below the minimum. Some accounts allow you to write checks from them, but those typically require a much higher minimum balance. Make sure that you understand the rules involved in removing money from an account with your prospective broker.
Complicated Fee Structures
While most brokers have similar fee schedules, some brokers have complex fee structures that make it harder to sort out hidden fees. This is particularly common among broker-resellers who may use fee structure as a selling point to entice clients. If you're looking at a broker that has an unusual fee structure, it's all the more important to make sure that the broker is legitimate, that it will look out for your best interests and that its fee structure will complement your investing style. If the rates seem too good to be true, be sure to read carefully over your account agreement and fee summaries, where additional fees are likely to be hidden.
What Kind of Investor Are You? Your choice of broker should be influenced by the type of investor you are. No single broker is good for all investors, so determining your investment style before you start investing is usually a wise decision.
The Trader Traders don't hold onto stocks for a long time. They're interested in quick and dirty gains based on short-term price volatility, and they make numerous trade executions over a short time span. If you envision yourself as a trader, you'll want to look for a broker with very low execution fees, as high trading fees could quickly eat up your returns. Also, don't forget that active trading takes experience, and the combination of a new inexperienced investor and frequent trading often results in negative returns.
The Buy-and-Hold Investor A buy-and-hold investor, or passive investor, is someone who holds stocks for the long term. They're interested in letting the value of their positions appreciate over longer periods of time and reaping the benefits at a later date. If you fancy yourself a buy-and-hold investor, your main concern will be avoiding brokers with monthly fees. For a long-term investor, a slightly higher trade commission should be less of a concern.
YI_firstbroker_1r.gif While a buy-and-hold investor would do best with broker A, a trader could minimize his or her broker fees by going with broker B. Additional Factors Many investors will find that their investment style falls somewhere between an active trader and a buy-and-hold investor, in which case other factors will become important in picking the most appropriate broker. For instance, if you're a very young investor (a minor) you won't be able to open your own brokerage account. However, some brokers make it easy to set up custodial accounts and provide fee structures that are more appropriate for teenagers, making it possible for people to start investing at a younger age.
The Bottom Line Eventually, there comes a time when you've got to make that decision and choose a broker. It's absolutely necessary to balance your needs as an investor and as a client – good customer service is essential, too. While your first broker won't necessarily be your broker for life, you have a much better chance of making money as an investor if you put the right amount of time and research into choosing a broker.
How the Fidelity Go Robo-Advisor Will Compare By Roger Wohlner | May 11, 2016 — 7:00 AM EDT SHARE
Fidelity Investments recently announced that it will be launching an entry into the robo-advisor world. The service will be called Fidelity Go. Fidelity began testing the service in November on a group of about 250 Fidelity employees and is now looking to sign up a number of existing clients in the 25 to 45 age group range.
The company plans to launch Fidelity Go nationally in the second half of 2016. Here's a look at what to expect. (For further reading, see: Fidelity's Leap Into the Robo-Advisor Pool.)
Competing with the Big Dudes When it launches its own robo-service, Fidelity will compete with Charles Schwab and its Intelligent Portfolios service as well as Vanguard’s well-regarded Personal Advisor hybrid robo-platform. Fidelity will also be up against Betterment and Wealthfront, two of the biggest robo-platform upstarts in terms of assets.
Vanguard’s robo-service has $31 billion in assets, followed by Schwab’s service and its sister version for financial advisors with $5.3 billion, according to the Wall Street Journal.
Previously, Fidelity had engaged in a partnership with Betterment to make its tech and platform available to financial advisors who use Fidelity institutional to custody client assets. The relationship with Betterment ended last year; presumably Fidelity has taken much of what it learned from working with Betterment and incorporated it into Fidelity Go. (For more, see: What's Next for the Robo-Advisor Space?)
Looking to the Future Fidelity Go likely marks a long-term strategic move for the financial services giant. "We think there’s a real opportunity to help emerging or younger investors who have been primarily saving in cash," said Rich Compson, head of the retail managed accounts business for Fidelity, in Wealth Management. "It’s a great way for them to get started with Fidelity and grow with us over time."
Fidelity Go seems like an attempt to capture the assets of Millennial and Gen X investors who, when combined, represent a massive number of potential clients poised to inherit even more from their parents and grandparents. This anticipated transfer of wealth is predicted to be unprecedented. This strategy differs from Vanguard’s whose service has attracted a large number of older, more established clients, many of whom are nearing retirement.
How Pricing Shakes Out Fidelity Go requires a minimum investment of $5,000. The cost to investors is 35 basis points in tax-deferred accounts and up to 39 basis points in taxable accounts. These fees include the advisory services provided as well as the expense ratios of the investment products used. Fidelity has indicated that BlackRock’s ishares ETFs will be the primary investment vehicles in taxable accounts due to their general tax efficiency.
In IRAs and other retirement accounts, Fidelity has indicated that it will use its own Fidelity Spartan index mutual funds to cover similar asset classes. It has said that where its own funds are used it would reduce the advisory fee component if needed to keep the total cost to the client at 35 basis points.
Vanguard’s Personal Advisor services has a minimum investment of $50,000 and carries an advisory fee of 30 basis points. This is in addition to the costs of the underlying investments which are generally Vanguard’s own, often low-cost products. The Vanguard service includes access to a human financial advisor in addition to its robo-platform. (For more, see: Vanguard Personal Advisor Services: A Quick Review.)
Charles Schwab’s Intelligent Portfolios service charges no advisory fee. It makes money from the expense ratios of Schwab mutual funds or ETFs used in the portfolios. It also makes money from the cash component of the portfolios which ranges from 6% to 10% of the assets. This cash is kept in Schwab depository accounts and the firm benefits from the difference in the interest rate paid to clients versus what they actually earn from these investments.
Robo-advisor Wealthfront charges an advisory fee of 25 basis points. The service is free for the first $10,000 invested. The expense ratios of the underlying ETFs used in their portfolios average about 12 basis points, according to the company.
Betterment’s advisory fee ranges from 15 to 35 basis points; the underlying ETFs used carry expense ratios that range from 9 to 17 basis points.
Rebalancing and Other Features Fidelity Go will rebalance client portfolios when they move outside of the parameters of the asset allocation chosen for a client. Unlike robo-advisors Betterment and Wealthfront, Fidelity Go will not offer a tax-loss harvesting service that is used to realize losses on taxable investments to offset gains elsewhere in the client portfolio. Fidelity has indicated that it will utilize muni bonds and ETFs as tax-sensitive investments to help minimize the tax bite on clients using the service for their taxable accounts.
The Bottom Line Fidelity Investments is joining financial services giants and long-term robo-pioneers in launching its own robo-advisor service. Fidelity Go is being rolled out selectively to Fidelity’s existing clients with an anticipated national launch in the second half of 2016. Fidelity is making a concerted effort to court Millennials and Gen X investors to conceivably cultivate this group as the firm’s future client base. (For further reading, see: The 5 Best Robo-Advisors for Investors in 2016.)
Picking a Broker Choose your stock market middleman wisely.
Brokers? Who needs 'em?
Well, you do. In order to buy shares of stock, you need a stockbroker to help you with the transaction. In the same way that your local electronics retailer is the "middleman" between you and computer manufacturers, the broker (also known as a stockbroker) is the link between you and the stock exchange.
What does a broker do? To better understand what a broker is and how one operates, let's define the broker's role.
A stockbroker is a salesperson. A broker works for a stock brokerage house (like Merrill Lynch or Charles Schwab). The broker's job is to carry out your transactions. (If you like Chinese food, the broker may also carry that out, but that's between the two of you.) Common questions about stockbrokers Q. How does a stockbroker get paid? A. Brokers are paid by salary, commissions on sales, or a mix of both.
Q. What qualifies someone to become a stockbroker? A. The glamorous life of stockbroker is not for everyone. Stockbrokers must pass two licensing examinations, called the Series 7 and Series 63. Successfully completing these exams allows the broker to advise you, to solicit business from you, and to execute transactions on your behalf.
In short, brokerage houses employ brokers to execute your transactions, and in the case of full-service brokers, to advise you in making your investment decisions.
Although brokers may do their own research, they're not research analysts -- not one of the people about whom you might read, "Sylvester J. Quibble of Hackensack Associates raised his estimate for Goosefeathers' latest full-year earnings from $0.19 to $0.35 per share, citing resurgence in demand for eiderdown quilts among bilingual tots." Research analysts are other folks who work for brokerages, and they're the ones doing that sort of enlightening, in-depth research of a company's business and industry.
Full-service vs. discount There are at least 60 discount brokerage houses, and many, many full-service brokerage houses. Just like searching for a mate, not every choice is suited to every taste, so you have to be a bit discerning and choose what best suits you. Most importantly, you must decide what you need. We can't help you when it comes to finding a spouse, but we can provide a general description of the services offered by full-service and discount brokers.
Full-service brokers These brokers tend to offer a wider variety of financial products, investment advice, and research than discount brokers. They may offer stocks, bonds, derivatives, annuities, and insurance. In exchange, they charge considerably higher fees.
Full-service brokers solicit business and are paid mostly by commissions. This means they get compensated not according to how well your portfolio does, but by how often you trade. In turn, that means it's in your broker's interest to have you trade as often as possible -- one of the main reasons why we at The Motley Fool eschew full-service brokerages.
Discount brokers Discount brokerages offer no advice or research -- they simply transact your trades with no frills. Because they manage fewer products than their full-service counterparts, discounters charge considerably lower fees. They also often offer online order-entry services. Live brokers at these brokerages are usually paid a fixed salary to execute your trades. They don't solicit, and they aren't paid commissions. Discount brokerages make money by doing business in volume, competing mostly on price and "reliability" of the service: Whoever has the lowest prices and the best service gets the most trades.
So many brokers, so little time... which one should you choose? We Fools advocate do-it-yourself investing -- we want everyone to do their own homework and make their own decisions, so we think discount brokers are the way to go. In fact, we've even got an area devoted to helping you select a discount brokerage, where you can find a comparison of online brokerages fees and services. We think you're capable of learning whatever you need to know to invest successfully, and you can save big commission dollars in the process.
Online trading Nearly all brokers offer online trading features. That's great for those who feel comfortable with financial transactions over the Internet, but is it right for you? It's wonderful to be able to access your account information at a moment's notice, and to place trades 24 hours a day. We like the idea of using an online brokerage account, but we also realize that some people prefer to deal with a real person when they're placing trades. Many discount brokers offer both options; in general, it'll cost more to trade via a real live human being than to do so over the Internet.
When shopping around for an online discount broker, you should ask plenty of questions about its customer service department. Online brokerage accounts are becoming easier to use, and providing more and more information. Still, you need to know how you can access your account information if you can't get online for some reason, yet still need to make a transaction. Will a "live" broker be accessible to you if you need to place a trade? What if you need a copy of your latest monthly statements for the IRS, and the web site is down?
If you're comfortable with your computer and you don't really need to hear that voice on the other end of the phone, we recommend that you go with a discount broker and trade online. If you need to hear a voice, the solution is simple: Choose a discount broker that offers telephone trading, too.
Placing an order You've picked a broker, done your stock research, and you're ready to place an order. How do you do it? What types of orders can you place? In general, and in keeping with our overall long-term buy-and-hold philosophy, there are only two terms you need to know: "buy" and "sell."
Sound simple enough? It is, and it doesn't really need to get any more complex than that. You buy a stock because you think it's a great long-term prospect, and you only sell it when you either need the money, or feel that there's a better place to put that money.
That said, there are different types of orders. To make sure you're not bamboozled by the terminology when someone flings it at you, let's look at the major types of orders.
First and simplest are buy orders and sell orders. You simply tell your broker how many shares of a given stock you wish to buy or sell.
You can also buy and sell at market -- at the prevailing market price -- or at limit -- only at a certain price or lower. For example, you might place an order for 100 shares of XYZ Industries at a limit of $140; you're only willing to buy those shares if you can do so at $140 or less.
When selling stocks, you can also use a stop limit, instructing your broker to sell your shares if they fall to a certain price. If you placed a sell stop on XYZ at $130, your broker would know to sell your shares if they fell to or below that particular price.
If it ain't broker... Just like the search for a spouse, finding the right broker isn't always easy, but it can be well worth the effort. Now that you have a general understanding of how brokers and brokerages work, and some of the options available to you, forge ahead and learn more about which broker is right for you.
How to Compare Brokerage Money Market Account Rates Grow your money safely with a brokerage money market account. Grow your money safely with a brokerage money market account. Investing in the stock or bond markets carries significant risk to go along with the growth potential, but placing your money in a savings account reduces the growth potential nearly completely. A brokerage money market account may prove to be the compromise you seek between safety and growth. A brokerage money market account is an interest-bearing account offered by a brokerage that uses the funds invested in the account for holding short-term securities. Most brokerage money market accounts offer an interest rate higher than that of traditional savings accounts, but finding the best account is about more than finding the highest rate. 1 Make a list of the competing money market accounts you’re comparing on a sheet of paper, leaving room next to each account to write details about the account. 2 Write down the regular interest rates for each account. Ignore the introductory rate, as the introductory period is not long enough to make a significant difference in the overall earnings potential of the account. The regular interest rate is the base rate your account will earn over time. 3 List the compounding interval for the interest. The more often interest is compounded on your invested funds, the more interest you earn in the long term. 4 Write down all fees associated with the account. Common fees include a setup fee, administrative fees and a minimum balance fee applied when your account falls below a minimum amount. 5 Use an online compounding interest calculator to determine the amount of interest earned on the amount you wish to deposit with the money market account. Be sure to input compounding intervals when making the calculation. This will give you your base interest amount. Compute the amount for all competing accounts. 6 Subtract all foreseeable fees from the base interest amount for each account. Write this final amount down as the actual return on your investment over the interest period. Compare the actual return earned to determine the best money market account by actual earned rate. Tip
Deposit your money in an FDIC-insured money market account to ensure your money is safe. Warning
A money market fund is not the same thing as a money market account; though the yield may be higher, the funds in a money market fund are not FDIC-insured.
How to Compare Online Brokerage Companies Most brokerage firms, large and small, offer online accounts. Large banks and brokerage houses usually offer costumers the option of personal management of their account with an individual broker, online services or both. Some discount-oriented firms operate solely--or almost solely--online. Ultimately, you have to assess what type of investor you are before settling on the online brokerage that is right for you. 1 Match your needs as an investor to your account choice. If you are comfortable doing your own research, trading, investing and portfolio management, you can go the discount route. If you are uncomfortable as a financial do-it-yourselfer or you have large amounts of money to invest, choose a full-service broker with an online presence. In this case, you will generally have the option of making moves yourself online or consulting with your own personal broker over the phone. 2 Set up automatic monthly transfers to your investment account from your bank account to avoid account minimums, if applicable. Minimum opening deposits vary from company to company. Some firms do not use account minimums, especially if you invest automatically. Others require low minimums, which tend to range from $500 to $2,000. Some full-service brokers have higher account minimums, which can easily approach tens of thousands of dollars, especially if you want the option of personal service. 3 Pay as little as possible in commissions and other fees. Generally, you have to pay when you place a trade online. This cost varies by broker and is often reduced for active traders or account holders who maintain certain balances. As "Consumer Reports" warns, look out for other fees as well, such as account management fees, if your brokerage actively manages your account in addition to providing you with online privileges. 4 Open your brokerage account during an account-opening special. Some companies offer free trades, deals on commissions or even free cellular phones and other goodies if you meet account-opening terms. 5 Apply for margin trading capabilities, if you are an experienced investor, who is not adverse to risk. Not all online brokerages offer margin trading. Margin accounts allow you to borrow money from your brokerage against the equity in your account to use for investing. You pay interest on what you borrow, so see who offers the most competitive rates. 6 Compare the services offered by the online brokerages you are considering. Most companies list them, by account type, at their website. Most offer a wide range of options, from general trading accounts to IRAs. Ultimately, it, again, comes down to who offers the lowest fees and best deals for active traders, if applicable to your situation. 7 Search for online brokerages that offer several ways to manage your account. Most online firms allow you to execute trades and other account services over the phone via a live broker or automated system for a fee. Increasingly, online brokerages provide access through smartphone applications. If you are away from a laptop or PC, you'll want to ensure you still have access to your money.
Under: Been on the sidelines for a bit holding (building) cash. Now that "BIGLEY" has rolled out the tax plan its time to jump in.
Dec 21, 2017 19:06:02 GMT -6
martyc: Looks like you are buying Msft again!
Dec 15, 2017 11:23:29 GMT -6
martyc: The news that Trump called Rupert to congratulate him sure seems to indicate that this is heading to approval
Dec 15, 2017 11:22:23 GMT -6
Under: DIS finally getting some traction.?
Dec 14, 2017 17:08:45 GMT -6
martyc: I took an entry level position in DIS. Will add eventually to overweight when it becomes clearer that the deal will go thru. Can't believe how well positioned they will be. 60% Hulu. 20% of content watched on NFLX they can pull. More in thread
Dec 14, 2017 11:05:16 GMT -6
Under: Great posts on $DIS
Dec 13, 2017 17:50:49 GMT -6
Under: $ROKU Citron on a war path.
Nov 28, 2017 15:11:20 GMT -6
Under: $HAS takeover bid for $MAT?
Nov 10, 2017 16:16:07 GMT -6
martyc: Not looking like the market will provide any discounted opp for SGMO. Call was just too professional and all signs indicate they are on a great path for commercialization. Happy with core but wish I had some trading shs
Nov 10, 2017 9:04:05 GMT -6
martyc: For anyone looking to find an entry point into SGMO, I'm almost hoping is sells off in next few days so I can add more. They are really clicking but the fact they haven't signed new deals might cause some to exit. Watching as I have room for trading shs
Nov 9, 2017 18:28:09 GMT -6
martyc: Been an interesting ride so far. I figured the Bears would be about this good but hoped the O wouldn't look so lame. Another building yr but still possible to get to 8-8 IMO
Nov 9, 2017 18:26:08 GMT -6
Under: whats up with your Bears this year Marty?
Nov 9, 2017 17:35:25 GMT -6
martyc: Hope you were long ROKU. I wanted to see Q first so missed out
Nov 9, 2017 7:08:53 GMT -6