Remember Me
forgot your password?

Discount Brokers vs. Full-Service Brokers

Discount brokers are stockbrokers who don't give investment advice. Discount brokers are not always human beings the term "discount brokers" can be used to describe either an individual ("Frank and Sarah are discount brokers") or a company ("OptionsXpress and FirstTrade are discount brokers").

Discount Brokers and Full-Service Brokers - A Comparison

In the days before discount brokers, only rich people could afford to invest. This is because the non-discount brokers charged such high fees and commissions. Starting with Charles Schwab, discount brokers became more popular among average investors, and the fees and commissions charged by discount brokers have been going down each year for the past several decades.

However, it is interesting to note that discount brokers still lag full-service brokers in overall assets under management. While discount brokers serve many more clients, affluent investors snub discount brokers in favor of their full-service counterparts.

As a result, despite the fact that discount brokers are more popular on an individual basis, full-service brokers are more popular in a total dollar basis.

Charles Schwab, the leader among discount brokers, had a total of $510 billion in assets under management as of 1999. By comparison, the full-service broker Merrill Lynch had a staggering $1.7 trillion with a "t." The great disparity is due to the fact that large institutional shareholders and ultra-rich individual investors often need services that go beyond simply placing buy and sell orders.

For example, if someone wants to move $1 million worth of Microsoft stock, it isn't as simple as logging into Ameritrade and placing a sell for 40,000 shares. These huge "block trades" (as they are called) require the finesse and experience of a full-service broker, and big institutions and billionaire individuals pay dearly for this expertise.

If you don't need this kind of service, should you pay extra for a full-service broker?

Discount of Full-Service? Sometimes It's Hard to Tell

When you choose to use one of the many discount brokers, you are making the decision that you can think for yourself, and that saving on the cost of trading is more important than added services. Full-service brokers typically offer personalized investment advice, as well as company-produced investment research reports.

While discounters do not have the time or resources to give individualized recommendations, a growing number of them are producing research reports on various stocks, bonds, mutual funds, and other investments, and others are making third-party-produced research reports available to their customers, free of charge.

Several of the web-based discount brokers offer free, real-time streaming quotes, which is something that was once only available through full-service firms. But the best way to determine whether or not your broker is a discounter or a full-service operation is to answer these questions: Does your broker provide individualized advice, from one human being to another?

Does your broker require a large (in excess of $10,000) minimum account balance? Does your broker charge you commissions for each trade, or an hourly fee for advice? While most full-service brokers still charge commissions instead of hourly fees, a growing number of them are beginning to go the hourly route, and it's probably best to select one of these brokers if you decide you want full-service.

After all, if you're paying for investment advice, you should be paying for investment advice - not paying excess commissions when you make a trade. In fact, some consumer advocates question the ethics of non-discount brokers who charge commissions instead of fees, saying that it encourages these brokers to recommend buying and selling, rather than holding, even when holding may be most prudent.

Discount brokers don't encourage you to buy or sell - the decision is left entirely up to you, and most individual investors feel better about this type of arrangement. If you can get some bundled services (for free) at the same time, then all the better!

William Smith
William Smith the author provides much more financial information on many subjects as well as the secret to his success in the market along with 5 Free power stock picks emailed daily so grab your Free subscription on his website at Discount Brokers (All is Free)
Rate this Article: 5 / 5 stars - 1 vote(s)
Print Email Re-Publish

Add new Comment



Captcha

  • Latest Finance Articles
  • More from William Smith

Eliminate Your Unsecured Debt - You Can Eliminate Your Unsecured Debt in the Market

By: Matt Couch | 02/01/2010
Economic problems have always been present in the corporate world.

Getting Out of Debt - How to Locate a Legitimate and Proven Debt Settlement Service Online

By: Matt Couch | 02/01/2010
The exact meaning of the word "negotiation" is finding the middle ground.

Credit Debt - How to Legally Eliminate Credit Debt With a Legitimate Settlement Program

By: Matt Couch | 02/01/2010
While debt has been a botheration for many the right way to handle such situation in such time of despair and hopelessness is extremely important.

Help With Credit Card Debt - Legal Tactics to Legitimately Eliminate Credit Card Debt

By: Matt Couch | 02/01/2010
Handling the debt is a major issue today for most of the American population.

On What Date Should You Retire

By: Tom Peters | 02/01/2010
On what date should you retire is a very important question that you should not decide on just a spur of the moment decision. There is a sliding scale upwards of when you can retire to receive the full social security benefits.

Chapters 7 and 13 Bankruptcy Explained

By: Tom Peters | 02/01/2010
The Chapter 7 bankruptcy is probably the one most known as it is generally the straight forward liquidation type of bankruptcy. Chapter 13 bankruptcies are different in that you are agreeing to a repayment plan for your debts upwards of a 5 year period.

Bankruptcy Pays the Debt

By: Tom Peters | 02/01/2010
For debts that are not automatically discharged through bankruptcy, you assets are protected so you can use them to repay your debts and eventually emerge from bankruptcy in a better financial position. Bankruptcy is also available to non-US citizens, as long as they assets in the US.

Get the most profit out of your savings interest

By: Mel C | 02/01/2010
When you want to get the most money out of your savings interest, look for ways to protect your money. Losing money will make it even harder to make a profit and this is something you need to work on avoiding.

Role of Online Brokers

By: William Smith | 08/12/2006 | Finance
Online Brokers are people or companies who buys and sells stocks on behalf of another person or a company

Welcome to Online Stock Trading!

By: William Smith | 08/12/2006 | Finance
Many independent investors that no longer seek the help or advice of the most common stock brokers make the choice to Online Stock Trading.

Explaining Penny Stocks

By: William Smith | 08/12/2006 | Non-Fiction
Penny Stocks are amongst the most uncertain and unpredictable investments you can easily make in today's financial markets.

Discount Brokers vs. Full-Service Brokers

By: William Smith | 08/12/2006 | Finance
Discount brokers are stockbrokers who don't give investment advice.

Explaining the Money Market

By: William Smith | 08/12/2006 | Non-Fiction
The Money Market is the financial market for short-term borrowing and lending, usually up to a time span of thirteen months.

Financial Planning - The Key to Your Lifelong Success

By: William Smith | 08/12/2006 | Finance
Financial planning is not limited to asset allocation, mutual funds, and fixed-income investments - financial planning should include every aspect of your life.

Explaining Online Broker

By: William Smith | 08/12/2006 | Finance
The Online Broker removes the confusion and makes the process of obtaining a loan simple, clear and economical.

What is Online Forex Trading?

By: William Smith | 08/12/2006 | Finance
Online Forex Trading is the arena where a nation's currency is exchanged for that of another currency of another nation.

Submit Your Articles Free: Signup
Article Categories




Use of this web site constitutes acceptance of the Terms Of Use and Privacy Policy | User published content is licensed under a Creative Commons License.
Copyright © 2005-2008 Free Articles by ArticlesBase.com, All rights reserved. (0.30, 1, w3)