New in Investing? Here’s Your Guide to Brokers
When you decide to invest, the people you will be talking to first will be a broker or a brokerage firm. Whether they are stock brokerages, bond brokerages, or an all-purpose brokerages, your journey as an investor starts with choosing a firm that will consider your needs and wants. In this article, we will explore everything you need to know about brokerage firms.
Basic details about brokerage firms
Brokerage firms allows you to trade financial securities like mutual funds, stocks, and bonds. You can start by opening a brokerage account with a trusted firm. Research the top firms in your area and read up on reviews and recommendations. If you know people who have made transactions with even one of the firms and ask about the experience. Then, create a shortlist of just three firms and pay them a visit so you can ask your questions to them directly.
Once you have chosen a firm and have opened an account, you can start buying and selling securities. For each transaction that you make, the brokerage firm earns fees from it. Check out the best stocks to invest in right now.
There are different types of brokers you should know about, each one with different base fees.
Types of brokers
Full service broker
As implied by the name, full service brokers can provide a whole suite of services like giving financial advice, performing trades, and selecting investments. You can choose from a wide array of investments and be given full data through their in-house research department.
Since they execute all kinds of transactions, their fees are more expensive. Not to mention extra charges for account maintenance and advisory. Note that because they earn commissions from each transaction, some full service brokers offer investments that the investors do not need. However, there are brokers who only charge advisory fees which basically reduces the overall charges.
This is a good option for investors who want to execute their own transactions. They can provide you with the research and analysis, but you will have to choose the investments and execute the trade yourselves. This is a much cheaper option since they only charge for commissions and no extra fees.
Think of this as the middle-ground of full service brokers and discount brokers. They will create an automated portfolio of investments and can execute the trades for the clients, but they will not be able to tailor the portfolio to suit the needs of the investor. They do not charge commissions for the transaction, instead you will pay advisory fees.
Choosing a brokerage
If this is your first time investing, it might make sense to get a full service broker so that you have a professional who can help you in each transaction that you make. The only thing you will need to look out for is spending for investments that you do not need, in the event that they offer you other types.
However, if you already have experience investing, then a do-it-yourself approach with a discount broker can do the job. In any case, if you want to be hands-off in your investments, robo-advisors are enough to execute your trades.
So visit your chosen brokerage firm and study all their services so you know what you are getting into. Make sure that you are financially capable of carrying out the investments and are willing to wait long term so it can grow significantly.