Full-Service vs. Discount Brokers: How They Differ

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Updated on Thursday, February 14, 2019

Investing your money for the future is essential, and for many people, one of the best ways to get started is to find a broker. Brokers are people or companies that serve as intermediaries to buy assets for you. Since you can’t easily buy mutual funds, bonds or shares of stocks on your own from the companies that issue them, your broker is the one that puts through the transaction, which is typically called a trade.

So how do you find a broker who can facilitate your investments? The first step is to decide what kind of broker you want. There are two main types of brokers — full-service and discount — and the services they offer, along with the fees they charge, are very different.

To help you decide which is right for you, check out this simple guide comparing full-service and discount brokers.

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What to look for in a broker

When you’re deciding what broker to use to purchase and sell investments on your behalf, there are a few key factors that you’ll need to compare.

  • The costs of trades: Brokers typically charge you a fee when you buy assets and a fee when you sell assets. This fee could be per trade — for example, you might pay a flat fee of $4.95 whether you buy 100 shares or 1,000 shares of a stock. Alternatively, you could pay a per share price — for example, you may pay $0.0044 per share of stock you trade. Be sure to look at fees for the types of assets you’ll be buying, as brokers often charge different amounts for trading stocks than they do to trade mutual funds or options.
  • The advisory fees: Some brokers provide you with advice on investments. There’s almost always a fee for this, and the costs can be quite substantial.
  • The types of investments available: Brokers facilitate different kinds of asset purchases. Most brokers allow you to buy stocks, ETFs and mutual funds. Some also allow you to buy options, futures, cryptocurrencies, bonds, CDs and other types of assets.
  • Minimum balance requirements: Many brokers require that you deposit a certain minimum amount of money to invest with them. While many discount brokers have low or no minimums, full-service brokers usually require a substantial deposit. For example, JPMorgan Chase requires a $50,000 minimum deposit for equity accounts in its advisory program. Some also require you maintain a certain minimum balance to continue investing or to avoid additional fees.
  • Access to customer service: You’ll want to find out if your broker is available to speak to, whether there’s an added cost for speaking to them, the types of customer service or financial advice the broker can provide, and the hours when you can connect with customer support.

By considering all of these factors, you can ideally find a broker that is affordable and provides you with the type of service and support you’re looking for.

How a full-service broker works

Full-service (or traditional) brokers do more than just facilitate investments you decide to make. When you invest with a full-service broker, the broker provides investment advice based on research the broker or brokerage firm provides.

Full-service brokers generally charge advisory fees as well as higher commissions when assets are bought and sold. In some cases, you may grant your broker discretionary authority over your account, which would mean the broker could buy and sell assets without checking in with you first — essentially having control over what you invest in.

While it can be convenient to have an investment professional managing your money and helping you decide what to invest in, this comes at a cost. The standard commission for full-service brokers is generally around 1% and 2% of the assets the broker is managing for you. Brokers may also be paid additional commissions on top of the management fee when certain assets are bought or sold.

These fees can be quite substantial and eat into the profits you make. But if you have a lot of money to invest, don’t want to be bothered with managing money on your own, and can find a broker with a good track record of helping clients earn good returns on their investments, a full-service broker may be a good option for you.

How a discount broker works

Discount brokers typically charge lower fees and lower commissions. But when using a discount broker, you are more likely to have to research investments on your own and manage your own money.

Many discount brokers are little more than online order fulfillment centers. This means you go online, use an automated form to specify what assets you want to buy or sell, and the brokerage firm executes the order for you. Often, this costs less than $7 per trade.

Discount brokers may offer education and research materials, but you won’t typically have an advisor assigned to make recommendations for you based on your needs or review the choices you make.

Because most discount brokers don’t perform investment research or provide hands-on advice, there’s often no advisory fee to pay for using a discount broker. And since you input your orders yourself, commissions on buying and selling assets are much lower than full-service brokers.

While you’ll need to be more hands-on with a discount broker, online discount brokerage firms are convenient and simple to use for most investors. Plus, you could always choose to buy ETFs or mutual funds through these discount brokers, which makes building a diversified portfolio easier than trying to invest in individual stocks of companies.

Since discount brokers are so affordable and easy, they have become very popular — especially for investors who don’t have a fortune to invest and don’t want to pay high fees for professional advice.

Is a full-service or discount broker right for you?

Ultimately, you’ll need to make the decision yourself whether a discount or full-service broker is the best choice. If you have enough money to justify paying higher fees for a full-service broker and you don’t want to be bothered with doing your investment research, a full-service broker may be the right choice. But if you’d rather keep more of your gains instead of paying big fees to a broker, a discount broker is likely the better option to meet your needs.

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