What Do Brokerage Firms Offer Investors?
Opening an account at a brokerage firm allows you to buy and sell stocks, bonds, mutual funds, and other types of investments. There are two broad categories of brokerage firms: traditional and discount (often called “online brokers”). Traditional brokerages are what typically come to mind when people think of financial advisors: professionals who guide you through financial decisions. They offer a comprehensive range of financial planning services, including investing advice, tax advice, retirement and estate planning, and much more. Most of the major banks like Bank of America (BAC) and JPMorgan (JPM) offer traditional brokerage services. While traditional brokerages provide a highly personalized experience, it comes at a cost. They often charge annual fees amounting to 1-2% of the assets they manage.
Discount brokers simply provide the online platform that enables you to trade securities. It is entirely up to you to make the investment decisions. Some discount brokers like TD Ameritrade (AMTD) offer in-person advisory services, but because these are not part of their core product offerings, they are far less comprehensive than those offered by a traditional broker. That said, the cost of a discount broker is dramatically lower. In fact, most discount brokers don’t charge yearly account fees, and just charge a $5-$10 commission on the trades you make. Discount brokers are a more affordable option for the majority of investors, so we will focus on them. But if you want to learn more about traditional brokers, check out our Ask an Advisor platform for more information.
Where to Open an Account
Before you open an online brokerage account, it is important to have a clear financial objective in mind. Different brokerages are tailored toward different types of investors. Most people are investing for long-term goals like retirement or buying a home. For these investors, a broker should offer a variety of mutual funds and ETFs, provide quality customer service, and not charge account inactivity fees. On the other hand, more active investors will care about other factors, such as the price of trades, research offerings, and data tools. We have broken out the main points that you should pay attention to depending on your investment style and level of experience.
- Commission-free mutual funds and ETFs with low expense ratios
- Customer service (with access to brick and mortar branches)
- Easy-to-use online interface
- Low account minimums and no account inactivity fees
- Large variety of low-cost mutual funds and ETFs
- Basic tools and research reports
- Customer service and mobile access
- Low commissions (under $7 per trade)
- Low costs (trade commissions, price per option, exercise fees)
- Asset class availability
- Great trade execution and after-hours trading
- Sophisticated research, data analysis tools and real time data