Tuesday, October 9, 2007

Broker Fees - What Are You Really Paying For?

There are many ways to approach investing, but all of them involve a broker of some sort or another whether on-line or in a brick and mortar building. How you choose your broker and the services a broker provides vary greatly. The terms full service broker, discount broker, and flat-fee broker may or may not be familiar to you, so I will go into further detail here.

If you have no desire to research your investment picks and have a substantial amount of money to invest, a full service broker is probably what you are looking for. A full service broker will take your money and invest it for you. You can tell the broker that you are most interested in certain stocks, bonds or other vehicles, or you can let the choices totally up to the broker. Because the broker is doing all the work, the commission fees are higher. This is acceptable to most people, as they also are only peripherally involved in their account, and feel the hands-off approach works the best for them. As long as the account is giving you the gains you feel are decent, the fees are worthwhile.

Another route to go with a full service broker would be to get a flat-fee account. This would eliminate commissions and trading fees while still getting the advice and guidance you want. I am not going to throw out any numbers here because the fees vary from region to region and are often negotiable depending on the amount you are investing. You can also find discount flat-fee brokers, meaning you would pay a monthly fee and the number of trades you make would not be burdened by a per-trade charge. Remember that without the flat-fee, you are getting a trade charge every time you buy and sell.

Many people are now using discount brokers, not getting the advice and guidance a full service broker offers. This is more prevalent now than ever before because of the information available on the internet. It is relatively easy to research a company using the internet. Using tools provided free by USA Today, Google, Yahoo and other free services makes due diligence much easier than in the old days of trying to find annual reports and paper records. Most companies now have this information on their own websites available for free downloading in PDF format. Cool.

Getting back to the discount brokers, there are many different on-line and brick and mortar brokers. The best thing to do is compare fees and see what works for you. Some brokers will not offer stocks not carried on the major platforms (Dow-Jones or Nasdaq) so if you are looking to invest in small companies or foreign stocks be sure to make sure they are available. I made this mistake opening an account with ShareBuilder. They are a great broker, but only offer a limited selection of stocks. The trade costs are relatively low, and the stocks they offer are carried by the main exchanges, but some stock picks I have made are not available through them. Not picking on ShareBuilder, just making a point. Be sure to know what you are getting into.

Hopefully this has given you some information you can either use or think about.

Thank you and solid investing to all

Rob

rob@wealthtrainingsource.com

Robert Britt is married and a father of four. He is a published author and has a degree in Psychology from Albright College . Robert is a recognized expert in the field of personal finance, self-esteem and confidence building. He is a full time professional writer and speaker. Robert spent 13 years in the military and 14 years in manufacturing prior to self-employment. Please contact Rob at rob@wealthtrainingsource.com or visit http://www.robertbritt.com