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How do you pick the rightbroker ? I know I should invest, but I
just really don't trust myself to do it right. There's just so much
to think about, so I think I'd like to go with a broker. But I'm
not sure how to pick one of those either. Help!!
-- Todd, Akron, Ohio
Hi, Todd. By the nature of your question, it's clear that you are
just starting out as an investor. So you should be spending time
learning as much as you can about investing before deciding alone
whichstocks andfunds are best for you. In fact, you may never have
the time and energy to do all the homework necessary to stay
informed about investing moves.
That's why afull-service broker is surely a goodoption for
you.Note these are differentbrokers than the "online brokers" such
TD Ameritrade (NYSE:
, which allow you to trade stocks for rock-bottom fees, butoffer
minimal investing advice or counsel.
You've probably heard of all of the leading full-service
brokers, as they likely have a branch office right in your town.
The top six full-service brokers (ordered by the number of brokers
they employ) are:
- Morgan Stanley
- Merrill Lynch
- Wells FargoAdvisors
- Edward Jones
- Raymond James
There are many other good options, though some firms don't have
the same armada of brokers operating out of retail offices and
instead rely on telephone and Web-based customer support. For
Charles Schwab (NYSE:
handle as many accounts as the firms noted above, but they may not
have an office near you.
Another distinction: The full-service brokers noted above, such
Morgan Stanley (NYSE:
and Merrill Lynch, offer a suite of financial planning services --
which can includeestate planning and long-termwealth management
strategies that may be better tailored to your needs.
If you think that sounds like what afinancial planner can do,
you're right. Today's full-service broker is expected to know much
more than just investments. They should be reasonably knowledgeable
abouttaxes , insurance, family trusts and other topics, and will
advise you on how to structure your portfolio in the context of
your long-term financial goals.
Every year, ratings firm J.D. Power & Associates polls
several thousand investors to see which firms deserve high marks
and which ones are to be avoided. You can read about the 2012
Advice Doesn't Come Cheap
Since these brokers are expected to take a good deal of time to get
to know your financial needs, they won't work with just anyone.
They aim to charge hundreds of dollars a year -- in fees and/or
commissions -- which is obviously not a realistic expense burden if
you only have $5,000 or $10,000 to invest. If you are thinking
about starting off with just a few stocks, and have less than
$50,000 to invest, then you may be steered to an online customer
service agent who can do little more than open an account for
If you do have enough assets to justify the use of a
full-service broker, note this is a very competitive industry, so
you are likely to pay similar amounts for the various fees that
these firms charge. You can often choose betweencommission
accounts, where you pay by the transaction, or a "wrap account,"
where you pay a prearranged quarterly fee, which is usually a
percentage of the assets that the firm is managing for you.
So, now that you know the different kinds of brokers, what they
are supposed to do for you and where to find the right one, what do
The answer is simple. You need to identify the various retail
branches of the major brokerage firms in your area, and then set up
a time to meet with each one.
You'll be paired up with aninvestment advisor who can walk you
through the firm's approach, the services offered and the various
expenses you'll incur. The single most important factor in this
assessment is your comfort level. You may be dealing with this
advisor for many years to come, and it's crucial that you like and
trust her. How they communicate with you now will indicate future
Suffice it to say, the more assets you have, the greater the
attention you'll receive.
Worried about ending up with a fraudulent broker who will
abscond with your funds? You shouldn't be. This is a heavily
regulated industry, and the major firms must continually certify
the integrity of their staff. The bad brokers are quickly weeded
out, so it's likely safe to go with an advisor who has been in the
business for at least five or 10 years.
Action to Take -->
Full-service brokers are a great choice for investors with a
considerableasset base and a complex set of long-term financial
goals. Still, thousands of investors prefer the simple, low-cost
route of an online broker. You really don't need to have a deep
understanding of investments. Simply look into a handful of
rock-solid funds such as the
, or high-quality companies with proven track records. Buy them and
hold them, and if history is any guide, they'll steadily rise in
value over the coming decades.
This article originally appeared on InvestingAnswers.com:
Finding The Best
Broker For You: What Every Investor Must Know
-- David Sterman
David Sterman does not personally hold positions in any
securities mentioned in this article. StreetAuthority LLC does not
hold positions in any securities mentioned in this article.
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