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How Much Does a Financial Advisor Cost?

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone and is not intended to be a source of investment advice. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

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When you start looking for help with your investments, one of the most common questions is, “how much does a financial advisor cost?” The exact amount you’ll pay depends on the advisor’s fee structure.

For advisors who charge a percentage of your account balance, the standard cost is an annual fee of 0.50% to 1.25% of your assets under management. If your financial advisor charges an hourly fee, you should expect to pay between $100 and $400 per hour.

It’s important to pay attention to the overall financial advisor cost, as it can cut into your portfolio’s value and returns.

The average cost of a financial advisor

Hiring a professional financial advisor can be an excellent investment to ensure you’re on track to reach your goals and build long-term wealth. However, the cost of using a financial advisor can vary widely.

How much you’ll pay for a financial advisor is dependent on several factors, including:

  • The size of your portfolio
  • Whether your account is actively managed or passively managed
  • If you’re using a human advisor or a robo-advisor
  • The advisor’s fee structure

Additionally, the financial advisor fee is only part of your total cost; you may also have to pay costs associated with investing, such as trading fees, fund fees and expense ratios. It’s important to make sure you keep those other costs in mind when comparing investment firms.

Cost of a human advisor vs. a robo-advisor

While robo-advisors tend to be cheaper than human financial advisors — Betterment’s annual fee starts at just 0.25%, for example — there’s generally less service and fewer investment options. With Betterment, you can only invest in exchange-traded funds (ETFs), whereas you can invest in stocks, bonds, mutual funds and real estate investment funds with a human advisor.

Additionally, with a human advisor, you get access to a professional financial advisor who will work with you to develop a personalized financial plan and investment advice. With a robo-advisor, you answer a few questions only about your goals and risk tolerance, which the program then uses to create and automatically rebalance an investment portfolio of ETFs for you.

You’ll want to consider your own financial situation and goals to determine whether the higher level of service provided by a human advisor is worth the higher cost.

Types of financial advisor fees

When it comes to financial advisor fees, there are several different ways an advisor may get paid. Some advisors charge a combination of fee types rather than just one, so make sure you ask about all of the different fees they charge before signing an agreement.

Average Rates of Different Financial Advisor Fee Types

Fee TypeAverage Rate
Percentage of assets under management0.50% to 1.25%
Hourly charges$100 to $400 an hour
Fixed fees $1,500 to $7,500
Commissions3% to 6%
Performance-based fees0.10% to 0.75% (in addition to base fee)

A percentage of assets under management

With this fee structure, which typically applies for ongoing portfolio management, the financial advisor charges you a fee based on the size of your overall portfolio. The fee is a percentage of the assets you have under management, with the usual rate ranging from 0.5% to 1.25%. Financial advisors usually charge a lower rate for investors with larger portfolios, so you get a discount for having more assets under management.

Hourly charges

If your financial advisor charges an hourly fee, you pay your advisor only for the time that they work for you. The financial advisor hourly rate can range from $100 to $400 per hour, and firms may require you to book at least two or three hours at a time. In general, the rate will depend on the services requested and the complexity of the situation.

When thinking about the return on investment for the financial advisor cost per hour, consider what you get for your money. Often, with hourly services the advisor will give you a blueprint so you can meet your goals, such as planning for retirement or saving for college. After the session, you can use that blueprint to execute the plan yourself rather than receiving ongoing assistance from the advisor.

Fixed fees

With a fixed fee financial advisor, you pay a one-time cost for their services. Flat fee financial advisors can charge anywhere from $1,500 to $7,500.

This fee arrangement tends to be a good option if you need help planning for a particular goal, such as saving your child’s college education or withdrawing funds to buy a second home, rather than ongoing assistance.

Commissions

With a commission-based system, the financial advisor earns a commission whenever a financial product is bought or a financial transaction is completed. A typical financial advisor commission is 3% to 6% of each transaction.

A commission structure is best for savvy investors who are knowledgeable about investing, as advisors have an incentive to sell you products. You’ll need to know when an investment is a good decision, and when an advisor is simply looking to make a sale.

Performance-based fees

Some financial advisors charge performance-based fees. These fees are charged when the portfolio outperforms a particular benchmark. The performance-based fee can range from 0.10% to 0.75%, on top of the advisor’s base fees.

Performance-based fees are controversial. Critics believe they could encourage advisors to take greater risks with investors’ money to increase their chances of earning higher fees. And, research has shown that performance-based fees do not improve overall investor return.

Financial advisor fee structure by service type

  • Portfolio management or investment advice: Portfolio management and investment advice are typically bundled together, often for an annual fee based on a percentage of assets under management. Portfolio management creates an investment strategy and asset allocation based on your financial goals and risk tolerance. Investment advice typically involves advising you on which types of accounts to open and what kinds of funds to select.
  • Ongoing financial planning: If you need holistic financial planning, such as estate planning, retirement planning or college savings planning, you may need regular check-ins with a financial advisor. For this service, you may pay a flat fee or retainer. In some instances, ongoing financial planning is included in the asset-based fee.
  • A one-time project or consulting: For one-time projects, such as a consultation for a major expense or the creation of a financial plan, financial advisors will typically charge an hourly rate or a fixed fee.

Is a financial advisor worth it? 4 questions to ask

Many people go without financial advisors and are completely self-directed when it comes to managing their money. If you’ve always handled your own money, you may be wondering, “Is a financial advisor worth it?”

Despite the fees that financial advisors charge, a good advisor can be well worth the added expense because of the value they provide. With their expertise and training, they can create a robust financial plan and develop a long-term investment strategy to help you achieve your financial goals. To decide if a financial advisor is a worthwhile investment for you, consider these four questions.

1. Is the advisor fee-only or fee-based?

Financial advisors are generally split into two categories: fee-only versus fee-based. A fee-only advisor is compensated only through the fees their clients pay, whether that’s an hourly rate, a flat fee or a percentage of assets under management. In other words, their compensation isn’t tied in any way to commissions.

Fee-based advisors, on the other hand, earn a mix of fees paid by their clients as well as commissions. Fee-based advisors have an incentive to sell you financial products since it boosts their own income, which creates potential conflicts of interest. Because of this, fee-only advisors are usually preferable.

2. How do the advisor’s fees compare?

Before selecting a financial advisor, it’s a good idea to shop around and do an investment fees comparison to find the right advisor for you and your budget.

Every registered financial advisor and investment firm is required to file a Form ADV with the U.S. Securities and Exchange Commission (SEC). The Form ADV outlines the firm’s services, disciplinary history and fees. The financial advisor should offer you a Form ADV, but if they do not, you can download it online yourself at adviserinfo.sec.gov. You can use the Form ADV from each advisor to compare fees against one another and the industry averages.

3. What will you get for the fee?

When reviewing each advisor’s fee, consider what’s included in the cost. Not all financial advisors offer the same services; some may provide more comprehensive services than others.

For example, some may offer asset management, but not financial planning. If a financial advisor offers both but at a higher cost, it may be worth the extra money to have an expert help you with your larger financial picture alongside your investment portfolio.

4. What added costs will I incur?

The advisor’s fee is only one investment fee you have to pay. There are other investment-related costs that can cut into your portfolio. These can include expense ratios, 12b-1 fees, sales loads, surrender fees and transaction fees.

If you’re not sure what the fees are, review the fund prospectus, and ask the financial advisor to review all potential costs with you.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

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Investing

What Is Wealth Management?

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone and is not intended to be a source of investment advice. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

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Wealth management is a top-tier financial management service that caters to wealthy individuals by curating and coordinating the right mix of financial products, experts and strategies to help grow and protect their wealth. It’s a consultative process that focuses on a client’s entire financial picture, not just one part of it.

Someone who is a wealth manager coordinates a team of experts to help their client reach their financial goals. Find out more about what their services entail to help you determine whether wealth management may be right for you.

What does wealth management entail?

For high net worth individuals (as defined by the SEC as having over $1.5 million, or at least $750,000 under management), managing their assets can be a full-time job. This is where wealth management enters the picture.

Wealth management offers a comprehensive package of financial services that can touch on every part of the client’s financial life, from investment advice to tax and estate planning. To do this, wealth managers will tap professionals and experts, such as accountants or lawyers, to help execute their client’s overall financial plan and strategy, which will be customized to their unique situation.

Wealth management services can include:

  • Analysis of cash flow and debt
  • Banking services
  • Business planning
  • Charitable giving planning
  • Estate planning
  • Insurance analysis
  • Investment management
  • Legacy planning
  • Legal advice
  • Portfolio management
  • Retirement planning
  • Risk management and asset protection
  • Social Security analysis
  • Tax advice

Do I need a wealth manager?

When it comes to various types of financial planning services, wealth management is the cream of the crop. Wealth managers generally focus on helping high net worth individuals manage all of the intricacies that come along with high levels of wealth, like tax complexities and estate planning challenges. If you need assistance in these areas, a wealth manager could be helpful.

Wealth managers are usually not needed for the typical consumer, and are instead often enlisted by high net worth and ultrahigh net worth individuals. Many wealth managers require investment minimums that can climb into the millions. In fact, the certified private wealth advisor (CPWA) certification, designed for wealth managers, specifies that it is designed to address the needs of clients with a minimum net worth of $5 million.

Additionally, the fees that wealth managers can charge — typically a percentage of a client’s assets under management — can be a deal breaker for the typical consumer.

Why use wealth management?

Whether or not wealth management is going to be beneficial to you largely depends on your financial situation. That being said, wealth management offers the following key benefits:

  • Convenience: Instead of taking the time and effort to research and hire a slew of different professionals to meet each one of your financial needs, your wealth manager acts as a sort of concierge, bringing the right advisors to you.
  • Personalization: When it comes to customization, it doesn’t get much more personalized than wealth management. Unlike a robo-advisor, which might offer you one of three pre-built portfolios, your wealth manager will make sure that every part of your financial plan — from your investment strategy to your tax plan — is customized to fit your needs and goals.
  • Focus on protecting generational wealth: Wealth management can assist high net worth individuals with the complex process of transferring their wealth, as wealth management services include estate planning and specialized tax help. Your wealth manager should be able to help you minimize fees and taxes, while also focusing on protecting generational wealth.

How does wealth management compare to other services?

Wealth management advisor vs. asset management

It can be easy to get wealth management confused with other types of management services, such as asset management. The main difference between wealth management and asset management (or portfolio management) is that while wealth management takes a comprehensive approach to a client’s finances, asset management takes a more granular approach by focusing specifically on a client’s investments.

The typical role of an asset manager is to focus on the performance of your portfolio and your asset allocation, and can include the following services:

  • Risk assessment
  • Portfolio design
  • Investment rebalancing
  • Tax minimization strategies
  • Monitoring of investments
  • Asset distribution

Additionally, wealth management tends to be more exclusive than asset management. Fidelity, for example, offers an investment management service in which you work with a team of advisors. This requires a minimum investment of $50,000 and an advisory fee of 1.05%. However, it also provides a dedicated advisor for investment management through its Wealth Advisor offering, which requires a significantly higher minimum investment of $250,000 and an advisory fee ranging up to 1.50%.

Wealth management vs. financial planning

Financial planners and wealth managers both fall under the umbrella term of financial advisors, but the two vary in significant ways.

Financial planners focus primarily on helping clients identify and reach their financial goals by designing a financial plan for them to follow. Their services, which are generally focused on lifestyle planning, can include creating a budget, planning for taxes or retirement and setting other savings goals. Meanwhile, wealth managers are more of a one-stop shop, with a focus on growing and protecting wealth.

Additionally, while a wealth manager’s clientele consists of high net worth individuals, a financial planner can serve a broader range of clients, from those who are just starting out to older investors preparing for retirement.

How to choose a wealth management firm

If you’re in the market for a wealth manager, carefully review your options, the services you’re in need of, the costs associated with each firm and the minimum investment requirements.

  • Take advantage of online resources to narrow your options: There are a number of online resources that allow you to scan through a curated directory of wealth managers, filtering out ones who might be a good fit for you based on your age and net worth. The Investments and Wealth Institute, for example, has a CPWA directory, and you can use FINRA’S BrokerCheck to research the background of firms or managers. These resources can be a good place to begin your search for a wealth manager.
  • Review the firm’s Form ADV: One document you should review before employing a wealth manager is the Form ADV. This document is filed by all investment advisors who are registered with the SEC, and includes important information about the firm’s business, clientele, employees, business practices and affiliations, services offered and any disciplinary events related to the firm, its employees or its affiliates.
  • Ask tough questions: Don’t shy away from asking your potential wealth manager the hard questions. Things you should consider asking a potential wealth manager include:
    • How do you define wealth management?
    • Who are your typical clients?
    • How are you compensated?
    • Is any of your compensation based on selling products?
    • What is your investment philosophy?
    • What licenses do you hold?
    • What financial planning designations or certifications do you hold?
    • What are your areas of specialization?
    • Will I work with you, or someone else in your company?
    • What kind of services can I expect?
    • Are you required to act as a fiduciary?

Wealth management FAQs

While wealth managers are not required to have a specific certification, they will likely have financial certifications like a certified private wealth advisor (CPWA), a chartered financial analyst (CFA), certified financial planner (CFP) or chartered financial consultant (ChFC). Wealth advisors will also need a license to buy and trade stocks for clients or to give investment advice.

When it comes to approaching a client’s wealth, a wealth manager will likely employ a number of investing strategies, many of which go back to tried-and-true methods of financial success, as well as focus on the client’s risk tolerance and financial goals. Specific investing strategies that they might deploy could include:

  • Value investing: This investment philosophy actively seeks out stocks that may have been undervalued in the market. These stocks are typically lower-priced than the broad market.
  • Growth investing: This strategy focuses on investing in growth stocks — stocks that are expected to increase in value over time — although they might not have a long history yet of doing so. These stocks are typically higher-priced than the broad market.

At its core, however, a wealth manager generally will use the best strategy depending on their client’s individual needs.

Wealth management does not come cheap. To even gain access to a wealth manager, you will typically need anywhere between $250,000 to over $2 million. From there, fees can range widely from firm to firm but typically hover around 1% of assets under management — Fidelity, for example, charges between 0.50% to 1.50% of your investments.

Wealth managers will typically charge clients based on a percentage of their assets under management. They might also charge a flat or hourly fee for wealth management services that are provided on a one-time basis or as needed. Wealth management firms might also make additional money through commissions earned by selling clients certain financial products.

All information included in this post is accurate as of July 7, 2020. For more information, please consult the Investment Firm’s website.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

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Best Online Brokers for July 2020

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone and is not intended to be a source of investment advice. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

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The easiest way to start investing from home is through an online broker. A broker’s main job is to buy and sell stocks, bonds, exchange-traded funds (ETFs) and other securities that make up your portfolio. When choosing an online broker it’s important to consider your investment experience and style, your trading needs and your financial goals.

Our Background

Our investing experts have been tracking the fees, features and capabilities of dozens of online brokerage accounts since January of 2019. Beyond that, our team of in-house experts consists of both financial analysts and journalists who collectively have more than 20 years of experience across the investment industry, encompassing financial advisory services, asset management, financial journalism and investment banking.

Our Thoughts on the Market

Investing is fraught with risk, as indicated by recent volatility in the markets due to the COVID-19 crisis. History shows that events in the capital markets are beyond your control as an individual investor, and it’s almost certain this will continue to be the case in the future. During these uncertain times, we’d like to remind our readers to keep an eye on the things that they can control, such as broker fees and risk exposure, when picking the right online brokerage account to fit your needs.

Again, there are no guarantees when it comes to investing and the right asset allocation will depend on both your unique financial goals and your individual risk tolerance as an investor. No matter what your goals are, our team of financial experts is ready to help you select the best fit for you from a selection of dozens of the most popular online brokerage accounts on the market today.

Start by checking out our picks for the top brokerage accounts below, which we’ve selected for a variety of investor types. Regardless of whether you’re just starting your investing journey or are a seasoned investing veteran, there’s a brokerage account out there that will suit your needs. Check out our rankings below.

Summary of MagnifyMoney’s Best Online Brokers for July 2020

Read below to learn more about online brokers and access our FAQs

TD Ameritrade: Best Overall Broker

TD Ameritrade
Visit TD Secured
on TD Ameritrade’s secure website
Key Features:

  • Fees per stock trade: $0 equity trades
  • Fees per option trade: $0.65 per contract
  • Minimum Deposit: No minimum

Read the full review

Why we picked it: TD Ameritrade pairs $0 equity trades with a high-quality platform that aims to target investors of all types, regardless of whether you’re a beginner or an investing veteran. There is no minimum deposit requirement, which makes this broker highly accessible, and its ThinkorSwim trading platform provides an industry-leading tool for both researching and executing advanced trading strategies.

Highlights:

  • Exclusive courses and webcasts for investor education.
  • Extensive selection of investments (bonds, foreign exchange [forex], options, futures) with $0 commissions across online stock, ETF and option trades, with option fees of just $0.65 per contract.
  • 24/7 customer service via phone, text and chat and more than 350 brick-and-mortar branches for in-person support.
  • Top-of-the line research and analytical tools through fully integrated desktop, mobile and ThinkorSwim platforms.

What to watch out for: Investors who are interested in futures trading should be wary of the steep $2.25 per contract fee, which is well above the competitor average (Schwab, Interactive Brokers and E-Trade all fall below the $2.00 mark).

Vanguard: Best Broker for Beginners

The Vanguard Group Inc.
Visit Vanguard Secured
on Vanguard Personal Advisor Services’s secure website
Key Features:

  • Fees per stock trade: $0 equity trades
  • Fees per option trade: $0-$1 per contract
  • Minimum Deposit: No minimum

Read the full review

Why we picked it: Vanguard has a simple, intuitive platform that’s well-suited for beginners and passive investors who don’t plan on trading frequently and want to minimize their investment fees. Vanguard’s collection of low-cost index funds, which include its Admiral Shares lineup of funds, are among the most popular and well-known funds on the market.

Highlights:

  • One of the biggest names in the business when it comes to passive investing.
  • Admiral Shares Funds feature some of the lowest expense ratios on the market.
  • 160 no-transaction fee mutual funds from Vanguard and more than 3,000 funds from other companies.

What to watch out for: Vanguard imposes a $20 annual maintenance fee on customers who don’t opt for electronic statements. The broker also requires a hefty $3,000 minimum investment in its standard mutual funds and $50,000 for actively managed funds, raising the buy-in significantly for investors seeking sector diversification. Vanguard also does not offer futures trading on its platform.

Interactive Brokers: Best Broker for Experienced Traders

Interactive Brokers LLC
Visit Interactive Secured
on Interactive Brokers’s secure website
Key Features:

  • Fees per stock trade: $0 equity trades
  • Fees per option trade: $0.15-$1 per contract, based on contract volume
  • Minimum Deposit: No minimum

Read the full review

Why we picked it: Interactive Brokers (IBKR) caters to advanced investors by providing complex trading and analytical tools and one of the most diverse selections of investment options on the market. IBKR is one of the few online brokers that offers exposure to a full suite of investment vehicles that many other online brokers won’t offer, including forex; exchange of futures for physical (EFP); hedge funds; foreign stocks and bonds; and futures.

Highlights:

  • Advanced smart-order router seeks optimal price execution making it an excellent choice for day traders.
  • Accumulate/Distribute algorithm features customizable logic to help investors fill large-volume orders while adapting to market conditions.
  • Professional-caliber Risk Navigator reveals exposure across asset classes and around the globe, helping investors monitor and adjust positions as needed.
  • Interactive Brokers’ Traders Academy offers a structured curriculum to advance your knowledge of a variety of financial instruments, complete with tests and recordings offered in multiple languages.

What to watch out for: There is a $20 minimum yearly trade commission required, so it’s not well-suited to someone seeking a passive investing approach. Some resources are also only available to IBKR Pro customers, and its fee structure is one of the more complex ones on the market.

Charles Schwab: Best Broker for ETFs

The Charles Schwab Corporation
Visit Schwab Secured
on Schwab Intelligent Portfolios ’s secure website
Key Features:

  • Fees per stock trade: $0 equity trades
  • Fees per option trade: $0.65 per contract
  • Minimum Deposit: No minimum

Read the full review

Why we picked it: Charles Schwab offers one of the largest selections of more than 2,000 commission-free ETFs that cover more than 110 Mornigstar categories. Not only are they covered across a broad range of asset classes, but Schwab investors have access to Schwab Intelligent Portfolios, a robo-advisor platform that automatically builds and rebalances a diversified portfolio of ETFs based on your investing goals.

Highlights:

  • All ETFs trade commission-free on U.S. exchange.
  • Premium robo-advisor service offers unlimited one-on-one access to a licensed certified financial planner (CFP).
  • More than 300 branch locations for investors seeking in-person support.
  • Intelligent Portfolios robo-advisor service automatically selects and rebalances a diversified portfolio of ETFs based on your investing goals.

What to watch out for: Non-Schwab Mutual Fund OneSource trades are up to $49.95 per purchase. Additionally, the interest rate on its cash sweep account is relatively low, and the account requires the user to manually transfer their cash if they’d rather hold it in a money market.

Ally: Best Broker for Options Trading

Ally Financial Inc.
Visit Ally Secured
on Ally Invest Managed Portfolios’s secure website
Key Features:

  • Fees per stock trade: $0 equity trades
  • Fees per option trade: $0.50 per contract
  • Minimum Deposit: No minimum

Read the full review

Why we picked it: Ally offers one of the lowest contract fees of just $0.50 per option contract. The broker also features intelligent options trading tools that allow users to forecast theoretical action values and help them identify the best options strategy based on their parameters.

Highlights:

  • Extensive tools designed to analyze market performance, including an ETF screener, a profitability calculator, streaming charts, option chains and more.
  • Cash transfer reimbursements combined with its integrated mobile and web platforms sync up with Ally’s online bank accounts.
  • Managed portfolios, an automated investing option, is available with a minimum deposit of $100.

What to watch out for: Ally charges $9.95 per trade for no-load mutual funds and does not have a collection of no-fee mutual funds that many of its top competitors feature. This makes the broker less than ideal for a passive investing strategy.

Fidelity: Best Broker for Mutual Funds

Fidelity Brokerage Services LLC
Visit Fidelity Secured
on Fidelity’s secure website
Key Features:

  • Fees per stock trade: $0 equity trades
  • Fees per option trade: $0.65 per contract
  • Minimum Deposit: No minimum

Read the full review

Why we picked it: Fidelity offers zero expense ratio index mutual funds directly to its customers. Unlike many of its competitors, there is no minimum to invest in Fidelity funds. Fidelity offers access to more than 10,000 mutual funds from Fidelity and other companies across a variety of sectors, styles and assets, with thousands of no-transaction-fee mutual funds available.

Highlights:

  • More than 3,700 no-transaction-fee mutual funds.
  • More than 500 commission-free ETFs.
  • No minimum investment amount required, making it easy to build a diversified portfolio of mutual funds.
  • Nearly 200 branch locations for investors seeking in-person support.

What to watch out for: Investors seeking to trade in futures contracts will not have that option through this broker.

E-Trade: Best Broker for IRAs

E-Trade Securities LLC
Visit E-Trade Secured
on E-Trade’s secure website
Key Features:

  • Fees per stock trade: $0 equity trades
  • Fees per option trade: $0.50- $0.65 per contract
  • Minimum Deposit: No minimum

Read the full review

Why we picked it: Beyond the typical Roth and Traditional IRA options offered by many competitors, E-Trade also features specialized IRAs. The broker offers an IRA tailored to minors who want to get a headstart on their financial future. There is also the E-TRADE CompleteTM IRA, which is geared toward those who are 59 ½ and older and not only eases the process of taking required minimum distributions once you hit retirement, but also doubles as an excellent bank account, offering free checking, online bill pay and even a debit card. E-Trade also has designated financial consultants that can help manage your portfolios and give retirement advice.

Highlights:

  • More than 9,000 mutual funds available (more than 4,400 of which are no-transaction fee)
  • Cash management features, including a debit card, checking and bill pay, available across its brokerage accounts.
  • E-TRADE Complete™ IRA offers free checking services and its own debit card, making taking required minimum distributions easy.
  • Beneficiary IRA and IRA for minors offer both traditional and Roth contribution options, which makes it easy for younger investors to get started on investing for the future.

What to watch out for: Not all accounts are eligible for cash management features. Investors interested in penny stocks also should be wary of the $6.95 charge associated with these trades.

Why Trust Us?

At MagnifyMoney, it is our mission to inform our readers about the best financial opportunities out there. Our insights have been cited by top financial publications including MarketWatch, CNBC and the Wall Street Journal.

Our dedicated team of financial experts spent dozens of hours grading each brokerage account on its features, including fees, minimum balance requirements, analysis tools and investment vehicles. Our method of evaluation not only compared features and cost, but also took into consideration the type of investor using these brokerage accounts.

Even though they did not make our top picks, we also considered the following brokers in our analysis:

How do brokerage accounts work?

Online brokerage accounts allow retail investors to access the financial markets without the need for a stock broker to act as a middleman. Online brokerage accounts are typically offered through licensed brokerage firms but many banks, money managers and registered investment advisors (RIAs) offer their own accounts.

One of the great benefits of online brokers is that they make investing highly accessible to the average investor, rather than limiting it to the realm of those with lots to invest. Brokerage accounts allow investors to buy and sell assets like stocks, mutual funds, ETFs, options and bonds.

Brokerage accounts can come in many forms but all provide the same basic function: They house your cash and investments and allow you to buy and sell financial assets. Here are some of the most common investment account types:

Retirement accounts:

  • Employer-sponsored retirement accounts: These include 401(k) plans, SIMPLE IRA plans, SEP plans and pension plans (both defined-contribution and defined-benefit) offered through your workplace.
  • Individual Retirement Accounts (IRAs): This includes both traditional IRAs and Roth IRAs offered through most large financial institutions including banks, credit unions and large mutual fund companies.

The benefit of retirement accounts like 401(k) plans and IRAs is that they allow individuals to invest on a tax-advantaged basis. The tax treatment will differ depending on whether contributions are made to a traditional or Roth account, but in almost all instances, retirement accounts offer individuals some form of tax relief. The trade-off comes in the form of both deposit and withdrawal restrictions.

Expert tip: “The benefits of a tax-advantaged brokerage account cannot be understated. Taxation is one of the biggest determining factors when it comes to your long-run investment returns. The ability to defer or exempt yourself from some of those taxes can pay major dividends over the long run.” – Kenny X. Zhu, CFA, MagnifyMoney Investing Columnist

Personal accounts:

Individual taxable brokerage accounts: Individual brokerage accounts are offered by a number of financial services companies, including banks and licensed brokerage firms. These allow you to trade securities within your own private account.

Joint brokerage accounts: Joint brokerage accounts function in the same way as individual brokerage accounts and are offered through the same financial companies. However, joint brokerage accounts allow for shared ownership by two or more individuals.

Personal brokerage accounts operate similarly to IRAs, but offer no real tax benefit, so your account earnings may be subject to interest or capital gains taxes. However, personal accounts typically feature no deposit or withdrawal restrictions, allowing investors greater freedom when using their personal brokerage account.

What Should I Know About Broker Fees?

When shopping for the best online brokerage account, it’s important to keep costs like commissions and fees to a minimum, as these will eat into your total investment return over the long-run. Here are a few fees you should always be aware of when you’re choosing an online broker:

  • Brokerage fee: Brokerage fees can be charged annually or monthly for the overall maintenance of your account. Many of our top brokerage picks do not charge brokerage fees.
  • Transaction fee: Also referred to as trade commissions, these are fees charged by the broker to complete your trade. Some firms charge a flat fee per trade while others charge per share being traded. It’s important to remember that for each investment you take a position in, you’ll likely be charged twice in terms of commissions: 1. to buy the asset and 2. to sell the asset at a later date. In a bid to increase competition, many of our top brokerage account picks have decided to waive trading commissions altogether.
  • Management Fee: Sometimes called an advisory fee, some brokers may charge you for a percentage of your total assets under management. This is typically charged in exchange for financial advisory or robo-advisor services in your brokerage account.
Expert tip: “When seeking returns, it’s easy to lose sight of minor details like management fees and expense ratios. Much like interest earnings, fees also compound over time and will eat into your total return. “ – Kenny X. Zhu, CFA, MagnifyMoney Investing Columnist
Trading Fees
Amount Minimum to Open Account
Annual Fee
$0.00 per trade
$0
$0 annual fee
Visit TD Secured

on TD Ameritrade’s secure website

$0.00 per trade
$0
$0 annual fee
Visit CHARLES Secured

on Charles Schwab’s secure website

How do I choose which online broker is right for me?

The best brokerage accounts offer low fees and commissions while providing plenty of investor tools and offering a wide variety of no-fee ETFs and mutual funds.

Brokerage accounts can vary considerably in terms of features and prices, so it’s important to consider your unique investing style and financial goals when choosing an online broker. We’ve outlined the key features to look for when shopping around for a brokerage account:

Fees: It’s important to compare the fees levied by each firm in terms of both management fees and trading commissions. Many firms will charge different fees depending on whether you’re trading equities or options. It’s important to take these into account within the context of your own experience as an investor and the securities that you intend to trade most. Keep in mind that if you’re seeking extra guidance or want specialized trading tools beyond what’s available to the average investor, certain brokerage firms may be willing to provide those in exchange for a higher management fee.

Promotions, free trades and account opening bonuses: Many online brokers will try to entice you to sign up by offering promotions in the form of free trades, cash bonuses or even gifted stocks. If you’re looking to open a new brokerage account and narrow your choices down to a few key brokers, it may be worth comparing their bonus offers to see which provides the most compelling offer.

This can be especially enticing for those who intend to invest large amounts, as these promotions can become more lucrative the more you deposit. Keep in mind that most bonus offers will require some level of minimum deposit or trading activity for you to be eligible. Many will also set time limits in which you may qualify, so make sure you read the full terms of these offerings when picking a brokerage account on the basis of its bonus offer.

Investment products: Many large brokerage firms offer their own line of no-fee ETFs and mutual funds, each with its own set of investment strategies, market exposures and specialities. This is important if you’re trying to obtain the greatest level of diversification at the lowest cost.

Also keep in mind that if you’re trying to get access to specific product lines offered through certain brands like Vanguard’s Admiral Funds, Blackrock’s iShares or State Street’s SPDR ETFs, you may not have access or will have to pay a higher fee to gain access to these investments, depending on which online broker you choose.

Additionally, not every online broker allows you to trade every type of investment. For example, some online brokerage accounts may limit or restrict trading in certain specialized assets, like futures contracts, forex or structured products. If you’re a sophisticated investor who’s interested in gaining access to a wider variety of investments beyond just stocks and bonds, it’s worth checking what types of investments are permitted before committing to an online broker.

Resources: Many brokerage accounts offer services beyond filling buy-and-sell orders, and some offer different tiers of service for those willing to pay more or commit a larger amount in cash. You also may want your brokerage to be your one-stop shop for banking or planning services.

Some other features that online brokers may offer in addition to trading include:

Account minimums: Online brokers may differ in the size of the minimum account opening deposit required. If you’re just starting off or don’t have a lot to invest, you may consider shopping for online brokerage accounts with low or zero minimum deposits. Conversely, those willing to deposit large amounts may be able to obtain greater tiers of service through brokers that require high account minimums.

Much like certain checking or savings accounts, some brokers also may require a minimum account balance to avoid service charges. In some cases, brokers will also require minimum monthly deposits to avoid this charge. It’s worth looking into specific brokerage account policies if you intend to invest lower amounts to avoid paying unnecessary surcharges.

Trading software and research tools: If you trade frequently or deal in complex investments, you’ll want to take note of each brokerage account’s investing platform, any specialized software they may offer and how much access they provide in the form of proprietary or third-party research reports and information published by industry experts.

Some brokerage firms may allow you to “tour” their online trading platforms and run a simulated trade so you can get a feel for the experience. If you plan on using your phone to trade on the go, it’s also worth taking a look at the broker’s mobile app to make sure it suits your needs.

Expert tip: “There’s no single brokerage account that’s unequivocally better than all others. The best brokerage account will vary by individual and depends on your personal investment philosophy, the type of exposure you want and how hands-on you intend to be with your investments, among other factors.” – Kenny X. Zhu, CFA, MagnifyMoney Investing Columnist

FAQs: What should I know about brokerage accounts?

Once you have a brokerage account, you’ll need to deposit money into your account. Online brokers make it easy to transfer funds from your bank account electronically, but many brokers also give you the option of mailing in a check or wiring money. Some well-known brokers like TD Ameritrade, Charles Schwab and Fidelity even have branches where you can deposit your checks in person.When you’re ready to trade, you’ll have a few different options in terms of the orders you can place:

  • Market order: Market orders typically offer the fastest execution for investors who want to buy or sell immediately. This order type directs the broker to buy or sell a security at the current market price. It may not always offer the best price though.
  • Limit order: A limit order directs the broker to buy or sell a security at a specified price or better. Limit orders give you the most control over the price at which your transaction is executed but take longer to execute depending on where the security is trading. If no counterparties are willing to trade at the price specified, the limit order will sit unfulfilled until the specified price becomes available or the order expires.
  • Stop-order: A stop order directs the broker to buy or sell a security once the market price meets the specified “stop” price, or better. Stop orders are similar to limit orders in that they allow investors greater control over where the trade is executed, but unlike a limit order, which allows counterparties to view the price at which you’re willing to transact, a stop order is not viewable by counterparties and automatically converts into a market order once the specified stop price has been reached. Investors typically use stop-loss orders to guard against potential losses.

The next step is calculating how many shares you can buy or sell. This will be based on the current share price minus any trading fees. It’s important to realize that trades aren’t automatic and the actual share price might change from the time you place your order to the time your trade is completed. Your final order can be impacted by factors such as:

  • Size of order
  • Availability of shares
  • Time you place the order

Generally, if your order isn’t huge and is for stocks traded on a major exchange (meaning stocks are readily available for purchase), there shouldn’t be a delay. If you place an order outside of normal trading hours, your order won’t be executed until markets open. Market volatility can cause after-market movements that impact the price of a share at opening, which is called a gap. Trading after hours could mean that you’re bound to a price you weren’t expecting.

You can trade more than just stocks with most online brokers. Given your financial goals, diversifying your investments can be a way to balance your portfolio and protect against losses. Here’s a list of securities types that most brokerage accounts allow you to trade:

Some brokerage firms offer more niche investment opportunities including forex and EFPs.

How much you’ll need to start investing will vary depending on which broker you choose and the type of brokerage account you’re opening. There are plenty of online brokerage accounts with no account minimums, lowering the barriers to entry to start investing for the future. Many 401(k) accounts can be set to automatically allocate your paycheck to mutual funds that your workplace plan allows for, eliminating the problem of minimum purchase amounts.

In theory, all you need to start trading is enough funds to cover the cost of a single stock and the trading commission, but you’ll want to take into account the current market price of the security you want and how big of a position you want to take. Keep in mind that trading fees incurred will eat into your total return.

Most online brokers offer exposure to international markets through mutual funds and ETFs that specialize in international investments. You also may be able to identify specific stocks that give you direct exposure to foreign companies in both over-the-counter (OTC) and American Depository Receipts (ADR) investments.

Keep in mind that international investments may command higher trading fees and additional risks and tax concerns that differ from trading domestic securities.

Any investments you undertake are subject to both gains and losses in market value. In other words, there are no guarantees that you won’t incur losses on either principal or interest when it comes to investing in any asset. It’s important to consider your own risk tolerance relative to your portfolio and overall investing strategy.

If you’re worried about the solvency of your broker or the funds in your brokerage account, know that all brokerage firms registered with the Securities and Exchange Commission (SEC) are also members of the Securities Investors Protection Corporation (SIPC), a non-governmental organization that insures brokerage accounts in a manner similar to the Federal Deposit Insurance Corporation (FDIC). In the event of broker insolvency or misappropriation, the SIPC insures your account for up to $500,000 per person (including a $250,000 limit for cash only).

It’s important to note that the SIPC will not cover any losses in market value on your investments, any investments in mutual funds directly held by the brokerage company or brokerage accounts held with non-SIPC member institutions.

Many online brokers offer additional resources and tools for researching, investing and financial planning, in addition to custodial and trading services. Often, brokerage firms will offer greater access or premium services for individuals willing to deposit more money or pay additional management fees.If you’re interested in premium features like personalized financial planning, in-depth investment education and technical and fundamental investment analysis tools, it’s a good idea to inquire with the firms you’re considering when shopping for the best brokerage account to see whether they offer these resources.

Fees

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Promotion

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Fees

$0.00 per trade

Account Minimum

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Promotion

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Fees

$0.00 per trade

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