Everyone wants to get the most for their money, but remember, you get what you pay for. Generally, discount brokers receive lower commissions than full-service firms. However, investors give up advice, updates on their positions and the firm's research. While "discount" has a nice ring to it, after reading the fine print you may find yourself getting scalped by miscellaneous charges, setup fees, handling charges, charges for research reports and lower interest rates on money market funds. It's enough to make you want to circle the wagons. Add to that the well-publicized difficulty investors sometimes have reaching their discount broker when the markets are excessively active, and you may be ready to call for a posse.
But these firms have their place. For experienced investors who do their own research and just want a place to execute trades, discounters can provide a valuable service. Before you get involved, though, make sure the firm can meet your needs. Discount firms vary widely in their number of offices, hours of operation, interest rates for margin loans, requirements for investors and trade executions.
There are discounters, deep discounters and deep, deep discounters--and, on the other side of the prairie, full-service brokerage firms, fee-based financial planners and fee-based investment advisors. Why bother with a full-service firm when you can get a newsletter, pick your mutual funds from a rating service and go on your merry way?
Successful navigation of today's markets takes more than luck; it takes true grit. Although many investors are comfortable making small investments themselves, hundreds of thousands of dollars may be another story. Remember, though, that while anyone can tell you to buy a stock, bond or fund, few will take the time to create a comprehensive package that can help you reach your goals.
But that doesn't mean giving an advisor complete control. According to Niosi, the most frequent complaints about brokers are unauthorized transactions and unsuitable recommendations. Preventing these problems is easy: Read your confirmations and statements as soon as they arrive. If there's a problem, call your advisor and follow up with a letter to the advisor (and his or her supervisor).