Choosing The Right Stock Broker And Brokerage Firm

By Ronald Kimmons. May 7th 2016

Stock is one of the most popular types of investment instruments available to the general public. Shares of stocks represent partial ownership in corporations, and when people buy this stock, they do so under the assumption that it will pay dividends and/or appreciate in value over time. Stock brokers and brokerage firms assist investors by providing them guidance related to [|]trading stocks[:|] and help with actually executing trades within the regulatory framework. However, not all stock brokers and brokerage firms are the same: prospective investors must learn to differentiate them in terms of both type and quality level.

[Related – Investing In The Stock Market For Beginners]

Service Level

The main differentiation that exists among stock brokers and brokerage firms is the matter of full-service versus discount. As the name suggests, full-service brokers offer dedicated customer service and consulting, helping their clients to develop and execute careful [|]investment strategies[:|]. Such stock brokers tend to see fewer clients lose money in the stock market. Those who are new to stock trading will most likely see more success with a full-service stock broker. However, the drawback to going with a full-service broker is that it will almost always cost considerably more.

For those who are more investment-savvy and want to save money, discount stock brokers offer the essential tools for executing trades at a considerably lower cost. However, as the investor is calling the shots with minimal input from professional advisors, those who use discount stock brokers have more of a tendency to make unprofitable trades. Quality discount stock brokers usually provide research tools to their clients, but they do not offer much in the way of consultation or direct guidance.

[Related – A Guide To Online Stock Trading]

Investment Volume

One thing to consider when looking for a stock broker or brokerage firm is the matter of volume. If you only intend to execute a few thousand dollars of stock trades, it is often more beneficial to go with a discount broker. Also, if you intend to engage in hyperactive buying and selling, pay attention to fees: when a broker charges a flat fee every time you execute a trade, this can add up to a substantial amount. However, if you are not a “[|]day trader[:|]” and you intend to invest large amounts of money into the market, it would probably be beneficial for you to seek the guidance of a full-service stock broker or brokerage firm.

Investment Types

Another thing to bear in mind when selecting your stock broker is the types of investments you intend to make. Different stock brokers and brokerage firms focus on different types of stock. Another way in which full-service brokers differ from discount brokers is in the fact that they often operate in a manner similar to sales firms, receiving revenue by selling specific stocks to their clients. Full-service brokers that do this tend to focus on specific sectors and industries, as doing so allows them to make educated suggestions. Also, even though they are called stock brokers, they do not only sell stock; they tend to sell a full range of financial products, such as mutual funds, annuities, and [|]life insurance[:|]. The specific products that full-service lenders offer vary depending on the managerial decisions they make and on the product providers that they are affiliated with.

[Related – Helpful Tips On Investing In Good Mutual Funds]

Investment Strategy

Something else to bear in mind when choosing a stock broker is the investment strategy in which you intend to engage. Some brokers focus more on aggressive investment strategies, while others focus on strategies that are stable and safe. Find out about various stock brokers to see which ones tend to focus on the type of investment strategy that you are intending to undertake. Remember that, in the financial world, risk and opportunity tend to go hand-in-hand.

Reputation

If you have decided to go with a full-service brokerage, one of the best ways to research them is by asking around. Talk to your friends and acquaintances who have worked with local brokerages and find out about their experiences. Take note about things like fees, success rates, and general customer experience. Since full-service brokerages tend to engage in sales activities, there can often be a conflict of interest, as the firm and its representatives have incentive to recommend the sale of specific stocks and financial products on the basis of immediate commission rather than on the best interests of the client.

For instance, mutual funds are often good investments for those who seek to follow safe, conservative investment strategies, but brokerages often feel hesitant to suggest them because the commission is so much lower than for other products such as variable annuities. Some brokerages have more of an issue with such conflict of interest than others, and the only way of finding out which have better reputations is by asking around.

Stock investment can be a financially dangerous game: markets are volatile, and no one ever knows for sure how a particular stock will perform. Make sure you do your research on the type of brokerage and stock broker you decide to go with to come up with the best investment strategy that’s right for you.

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