Partnerships are a critical component of success. Great partners
help people achieve great results, but a weak link can be a huge
drag on performance. That applies to education, business and
Nowhere is this more apparent thaninvesting . Investors are
tasked with creating key partners thatwill help them effectively
navigate a volatile and complicated globalmarket .
A greatinvestment advisor is an investor's most important
partner and resource. (Last month,
I wrote about the benefits
of working with a
registered investment advisor
instead of a
.) But a very close second is a partner that some investors take
for granted. In fact, without one, investors wouldn't even be able
to buy or sell
##I'm talking about brokerage firms.
No doubt about it -- there are huge differences among the
hundreds of brokerage firms available to investors. In this age of
advanced technology, investors are flooded with an ever-growing
universe of brokerage firms thatoffer a wide variety of products
But that's not a bad thing.
Brokerage firms have continued to raise the bar through the
years,offering better products and services at a better price that
has led to a better user experience.
And those differences can have a big impact on the performance
of your portfolio. That's why it's so important to understand how
to evaluate a brokerage firm.
There are seven key questions every investor should ask to find
a brokerage firm that provides the perfect mix of price and
1. How Much Does It Cost?
Opening up a brokerage account is free. There usually aren't any
startup fees or hidden expenses. But moving forward, the way the
brokerage firm makesmoney is by charging a
to process customer trades.
This is the primaryrevenue model for brokerage firms. But there
is a big difference in what brokerage firms charge per trade.
Scottrade, for example, advertises a flat rate of $7 per trade.
InteractiveBrokers , however, advertises at just $1 per trade, with
a $10 monthly minimum. Charles Schwab advertises one
trade for $8.95.
Whether you are a
or something in between, your biggest expense is the cost of
executing a trade. That's why it's so important to find a brokerage
firm with execution costs that fit your budget.
2. What Service AndSupport Is Offered?
Pricing discrepancies among different brokerage firms typically
aren't arbitrary. Higher execution costs are usually associated
with different levels of service.
If you're only paying $1 a trade at a
, it is highly unlikely youwill receive anyinvestment
from a broker,investment advisor or dedicated consultant. However,
if you move up into premium execution services -- ranging anywhere
from $20 to $50 per trade -- youwill most likely be able to use
live support and a dedicated broker or
. And while self-directed accounts continue togain popularity,
having a live
for trade support and specialized research can be a valuableasset
and worth the cost of higher-priced execution.
3. What Online Tools Are Offered?
In an age when digital information flows freely in real time,
investors are extremely demanding when it comes to online tools to
monitor and analyze their portfolios. And there is a big difference
among brokerage firms here as well.
Bigger players in the industry such as TD Ameritrade (Nasdaq:
AMTD) have powerful financial resources to build customized
interfaces and portals for their customers. This includes real-time
portfolio monitoring, analytics and research. For investors who
want real-time access to their
accounts, these features are critical. But for a long-termbuy and
hold , a real-time interface makes little difference.
4. How Much Proprietary Research And Analysis Is
Speaking of research, many brokerage firms offer in-house and
third-partymarket research to their customers. The research can be
in the form of reports on individual stocks,
updates or analysis of
yields. This can be a great source of information for more-active
investors and provide greater depth than might be available through
traditional newswires and mainstream research.
5. Do They
Access To International Markets?
We've been operating in a globaleconomy for a long time.
Investors no longer think just domestically when identifying
potential investment opportunities. That's why it's important for
international investors to have access to global markets.
Evaluating whether a potential brokerage firm offers access to
is critical for investors with a global view.
6. Is The Firm Itself Risky?
The brokerage firm industry has suffered from a couple of nasty
PR wipeouts in the past two years. After MF Global lost billions of
dollars of client
, investors wereput on notice that a brokerage firm can carry a
significant amount of business risk. A small online brokerage firm
carries a totally different risk profile than industry behemoths
such as TD and Schwab.
7. What Promotions Or Incentives Are They
To Lure Customers?
The brokerage firm industry is extremely competitive. With the
implementation of low-cost, online
, execution costs across the industry have been falling for many
years. And that is a good thing for the consumer. That has created
pricing wars in the brokerage firm industry, which use promotions
and incentives to lure customers away from each other. Getting free
trades for a bigyear can be a huge cost saver and incentive to go
with one brokerage firm over another.
Investors interested in opening a brokerage account should make a
list of their investment goals and priorities. Figuring out what
products and services are important is a great way to identify a
brokerage firm that offers the right mix of value and support. And
when you're ready to open a new account, the process is simple,
administered online, usually taking only 10 to 15 minutes and
involving less than 10 pages of paperwork.
P.S. -- Have you read our latest report -- Top 10 Stocks for
2013? One stock has raised its dividend 33 consecutive quarters.
Another dominates its market... pays $3.40 in dividends per share
each year... and has returned 117% since it went public just over
four years ago. In this special presentation, I'll tell you about
all of our just-released picks for 2013 -- including several names
and ticker symbols -- so that you can start profiting today. Click
here to learn more.