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There isn’t a one-size-fits-all broker. Your investment goals, the firm’s credibility, fees and trading tools are all factors to consider when choosing the best broker for you. Use this guide to better understand what features make a broker noteworthy, and how to determine which one makes sense for your needs.
Consider Your Investment Goals and Budget
Nowadays, there are more types of brokers than ever to choose from. While there are still traditional human brokers — many of whom now also act as overall financial advisors or wealth managers — online brokers allow you to buy and sell from your couch via an app, and robo advisors use your goals and risk tolerance to create a well-balanced portfolio for you.
The first question to ask yourself when choosing a broker is what your investing goals are. If you want a hands-off approach in which you don’t have to worry about choosing securities and rebalancing, a broker who helps with the management of your money or a robo advisor may be the best option. But if you want a bit more control over your money and have investing knowledge to manage your account yourself, you may want to go with an online broker.
With an online broker, you’re in charge of trading your investments and rebalancing your portfolio. While you won’t benefit from the advice of a professional, you will face much lower fees than you would with an account managed by an expert.
With an account managed by an investment advisor who trades your investments and rebalances your portfolio, you don’t necessarily need to have the time or financial literacy to manage a brokerage account on your own. But these can be expensive and are out of reach for many investors. A robo advisor may be a good compromise, since you can take a hands-off approach but avoid the high costs associated with managed brokerage accounts.
Verify the Broker’s Background
A critical part of choosing the right broker is verifying their background. While you can’t ensure you won’t lose money while investing, you can make sure you’re trusting a legitimate broker. Before considering a broker or brokerage firm further, verify the employment history, certifications, licenses and any violations with the Financial Industry Regulatory Authority’s BrokerCheck tool. If you see any violations, consider choosing a different broker.
You should also check if the brokerage firm is a member of the Securities Investor Protection Corporation (SIPC). The SIPC protects investors for up to $500,000 (including $250,000 for cash) if a firm goes bankrupt.
Consider Fees and the Fine Print
When choosing a broker, there are many types of brokerage fees and requirements to consider. Fees vary depending on what type of brokerage account you open and what types of investments you trade.
Common types of brokerage fees to compare are:
- Transaction fees
- Advisory fees
- Ongoing fees (like account maintenance fees)
Many online brokers now offer zero-commission trading without account minimums.
Brokers with no commissions include:
- Charles Schwab
- Vanguard
- Fidelity Investments
- Robinhood
- Webull
You’ll also need to read the fine print. There can be account minimums and specific requirements, depending on the broker and type of brokerage account. Failure to follow the fine print can result in additional fees or account closure.
Compare Trading Tools and Features
You’ll also want to compare the products that different brokers offer. For example, if you’re interested in options or crypto trading, you may be limited to certain platforms.
Online brokers also offer different levels of market research and education. If you consider yourself a trader who is planning to buy and sell regularly, you may want a platform that provides daily information on which stocks are performing best. But if you’re investing for the long term, like for retirement, you may be better off going with a broker that can help you create a portfolio that will grow over time.
Other factors to consider are whether you want to be able to set up automatic transfers to your investing accounts, want help with tax-loss harvesting and want the option to transition to working with a human or robo advisor at the same firm once you have a higher balance.
Sources:
Gravier, E. (2024, January 1). Want To Get Into Investing? Start With These Free Stock Trading Platforms. Retrieved from https://www.cnbc.com/select/best-brokerage-free-stock-trading/
Securities Investor Protection Corporation. (n.d.). Investor FAQs. Retrieved from https://www.sipc.org/for-investors/investor-faqs
