Beginner's Guide to Brokers

1. Full-service Broker Offering Investment Advice or Portfolio Management

This broker offers a full range of trading services and financial advice and charges you a commission. As the name says, it's full service -- for a price. The broker makes money based not on how well your portfolio does, but on how often you trade. Most, but not all, of the brokers in this category provide specific recommendations on buying or selling stock. However, some brokers, especially those affiliated with banks, may also offer financial consulting regarding your portfolio and sector allocation.

2. Discount Broker Offering Low Commission Rates and Limited Services

This broker will execute your trades at a discounted commission rate, but offers no guidance in selecting stock. Some full-service brokers may also be listed as discount brokers because they offer a commission discount on any trades that you initiate.

3. Online Broker Offering Internet-based Trades and Research

This broker offers discounted trading via its Web site. Online brokers typically cater to the "do-it-yourself" crowd by offering research tools but no advice or even contact with an actual broker.

How do you decide whether to deal with a broker from a full-service or discount brokerage firm? Arm yourself with as much information as possible.

Consider the advantages and disadvantages.

Advantages of Full-Service Firms

"One-stop shopping": You can more readily trade other instruments, in addition to stocks, as you become more experienced and potentially want to venture into more sophisticated investments.

More service: Typically, but not always, a full-service broker will know more about your personal situation and be able to help you with your investment choices.

Disadvantages of Full-Service Firms

Higher commissions: The standard commissions charged by full-service brokerage firms can be significantly higher than those charged by discount firms.

Stricter requirements: Many full-service firms are stricter, requiring a high net worth for riskier investments in things like options and futures. For most beginning investors, this is not an issue.

Advantages of Discount and Online Brokerage Firms

Discount commissions: Standard commissions are lower across the board. You may sometimes be able to negotiate still lower commission rates.

More flexible requirements: The net worth requirements for opening an account are usually less strict than they are at full-service brokerage firms. Again, this is typically for riskier investing and not generally an issue for the beginning investor who's only buying and selling common stocks.

Disadvantage of Discount and Online Brokerage Firms

Less service: Some investors see discount brokers as "order takers" who don't give you the time and service you need. This is true up to a point, but it's changing. To keep up with competition, many discount brokers are becoming more service oriented.

Don't Get Stranded in the Jungle -- Check Your Broker's Record

A beginning investor logically thinks that finding a good stock is top priority. But finding the right broker is critical, too. Don't get caught short -- check your broker's record before you start doing business.

How do you do that? We offer a few wise tips.

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