When opening your own investment accounts, you have a choice between two major types of companies: Full Service or Discount Brokerage. Which is right for you?
Full Service brokerage, like full service anything, will generally cost you more, but with the promise of more personalized attention. Things like trading, money management, and investment choices usually come with higher costs and built in commissions at a full service institution. In exchange, you can forgo the 800-number when you need help and call your guy (or gal) or their secretary for your questions and administrative needs.
This model is generally best for people who value an ongoing relationship with a few people and require a lot of assistance making investment decisions. Or possibly people with complex business, family, tax, lending, or estate needs.
Companies that fall in the full service brokerage model are names like JP Morgan, Goldman Sachs, Wells Fargo Advisors, Merrill Lynch, RBC, Edward Jones, and Raymond James.
Discount Brokers can be a fit for those who prefer to research and execute investments on their own, or maybe with some advice. At a discount brokerage you generally don’t get an advisor-for-life relationship. You can visit the branch offices (except for Vanguard – no branches), use the website, or call the 24-hour 800-numbers for questions or help. The employees generally are compensated on a salary and bonus structure and not as reliant on sales commissions to make their living. Fees such as account maintenance, money management, trading, and underlying mutual fund costs tend to be less at discount brokerages.
Big names in this space are Vanguard, Fidelity, and Schwab. TD Ameritrade and E-Trade are also players here, but they are in the process of being acquired by other firms, so you are left mostly with those three.
Discount brokerages tend to have more user-friendly websites and robust research available for the do-it-yourself investor.
A hybrid model is using an independent Registered Investment Advisor. These firms tend to be local or regional, often charge a percentage or flat fee to manage assets, and will house your money at a discount brokerage firm. You’ll get a higher touch service here and be paying some sort of an annual fee.
As always, I hope this little blog helps demystify some of the terms we financial people throw around.
