There are some of you that might be better suited for these types of full-service brokerage firms. For instance, mahogany paneled walls, well-heeled brokers, and fine cut crystal glasses despite the substantial costs.
To know whether or not the types of full-service brokerage firms are good for you, here are the things.
Things You Get when You Pay for a Full-Service Stock Broker
With a discount broker such as Fidelity, Etrade, or Charles Schwab, you are simply paying to get your trades executed. For those with experience, the ability to analyze financial statements, and an understanding of businesses, this is an ideal arrangement.
The good new is that there is strong competition in this space that the cost of commission has come down. In fact, there is no commission at all in many investments trade. After all, you just need someone to place the trades you order.
For those without any financial experience or who want the comfort and security of hand holding, just as importantly, don’t mind paying for it. A full-service broker can be worth the cost.
Although services and products are not fully uniform and costs will vary from firm to firm, typically you should want some or all of the following from your full-service broker. Things you need to consider are:
- The access to unique and proprietary research on stocks and bonds
- Retirement planning
- Tax preparation and strategies
- Experience
- The ability to handle unique trade requests.
- Opportunities to invest in certain private equity or hedge funds
- Access to initial public offerings.
Perhaps the biggest benefit for someone without experience is the opportunity to have a reputable firm guide you through the process. Although it is highly probable that the fees will cut into your returns, you may be better off in the long run.
Since the good broker can hold your hand through turbulent markets, he/she can help you to avoid mistakes such as selling at markets bottoms or buying during speculative bubbles. In addition, as long as you have a reputable firm with a proven history of good, long-term results, stay the course.
An Alternative to Full-Service Brokerage Firms
There is one alternative to full-service brokers that is particularly attractive if you don’t have a lot of capital to invest or you are primarily interested in buying and holding stocks for the long term (10 years or more).
A direct stock purchase plan or a dividend reinvestment plan is the type for a full-service brokerage firm. These low-cost plans allow you to buy shares directly from a company, paying only $1 or $2 in commissions through optional cash payments or regular, recurring withdrawals from a checking or savings account.