Editor's note: This is a special excerpt from
1. Full-service Broker Offering Investment Advice or Portfolio ManagementThis 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 ServicesThis 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 ResearchThis 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
Don't Get Stranded in the Jungle -- Check Your Broker's RecordA 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.
Investigate the Broker's and the Firm's IntegrityGo to the FINRA BrokerCheck at
Be On The Lookout: SIPC MembersIf the broker has been involved in securities arbitrations, find links to state securities regulators by visiting
Is the firm a member of the Securities Investor Protection Corporation (SIPC)? Almost all brokers are SIPC members. SIPC provides limited customer protection if a brokerage firm runs out of money. However, SIPC does not insure against losses if your stock declines in value. Also contact the Securities and Exchange Commission (www.sec.gov), which monitors the industry, to file a complaint.
Shop Around for the Best CommissionsCommission costs can have a dramatic impact on an investment's performance. Most investors often ignore or underestimate how much of an impact broker commissions can have on their final results. Avoid disaster simply by using a broker who charges you the average commission rate. To give you a head start in selecting one that suits your needs, we've put together the Broker Comparison Checklist (below). Although commissions alone shouldn't be the only factor that you consider when selecting a firm, these costs certainly can be a very critical factor if you trade actively. Make sure the broker trades the same types of securities you want to trade. For example, you may want to trade preferred stock, which not all brokerage firms trade.
Interview Your BrokerRead the "
Be On The Lookout: Broker Check-Up
After selecting a broker, keep close tabs on what he or she is doing. Follow up within a day or two after making a trade to make sure your broker carried out your instructions properly. Also, check your monthly account statements carefully to make sure the transactions accurately reflect your orders. If there's an error, follow up immediately, first with your broker and then with the branch manager. If you get no satisfaction, go to the firm's compliance department. If the problem is still unresolved, file a formal complaint with the firm, the SEC, FINRA, and the stock exchanges to which the firm belongs.
|Broker Comparison Checklist |
|Broker #1||Broker #2||Broker #3|
|Types of Services Offered:|
|Money Mgmnt./Fee-Based Accts.|
|Mutual Fund Trading|
|IRA Retirement Planning|
|Other (like options trading)|
|100 shares @ $10 per share:|
|100 shares @ $100 per share:|
|1,000 shares @ $20 per share:|
|Account Minimum Fee||$_______________||$_______________||$_______________|
|Initial Minimum Investment||$_______________|
|Licensed to Operate in My State||Yes ____ No ____||Yes ____ No ____||Yes ____ No ____|