Choosing Your First Broker: What is a Broker and What Should You Look For?

May 26th, 2017 | by admin
Choosing Your First Broker: What is a Broker and What Should You Look For?
Business
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Think of stock brokers as middlemen between you and the stock exchange. You need someone who can facilitate the transactions you will make as you buy and sell stock. Theoretically, your broker will act in your best interests, but this doesn’t always happen. More on that later.

In a nutshell, a stock broker is essentially asalesperson who works for a stock brokerage house. Their job is to carry out your transactions. They are typically paid a commission, or they work on a set salary, or they get a combination of both. In order to become a stock broker, one must pass two licensing examinations, referred to as the Series 7 and Series 63. Once they become a stock broker, they can execute trades on their clients’ behalf.

While you would expect stock brokers to be experts at research and analysis, fact is, they’re not research analysts by trade. There are other people out there who do that. So while your broker will do some rudimentary research, he or she is relying more on the research and analysis of others.

Types of Firms

The two types of brokerage firms are full-service and discount.

Full-service brokers offer a wide spectrum offinancial products, investment advice, and research. Typical offerings include stocks, bonds, derivatives, annuities, and insurance. As such, they charge a higher fee than discount brokers.Paid in commissions, they are paid based on how often you trade, not how well your portfolio performs.

Discount brokers are a bit different.Don’t expect advice or research from a discount broker. You get a no-frills experience whereby they transact your trades with no extras. Because they manage fewer products than full-service brokers, they charge lower fees, says The Motley Fool. In addition, they may offer online order-entry services and are paid a set salary rather than commissions. Discount brokerages earn money by bulk volume trading.

We always recommend doing your own homework and making your own decisions. In that respect, a discount broker may be the best bet for you. However, if you prefer a wide range of products and services with a hands-off approach, a full-service broker may be for you.

If you enjoy the ease of transacting online, look for a broker who offers the versatility of online features. You can access your account information 24/7, check your statements, do your research and place trades whenever you want. If you’re the type who needs to speak to a human being, look for a broker who offers both the ability to manage your accounts online as well as pick up the phone and call.

Ask questions about the customer service department and find out what the hours are. Who will you be speaking to? Can you have a direct line to your broker or do you have to go through an 800 number? What if you can’t place a trade online due to some circumstance like no access to wi-fi? Will a live broker be available to take your call and place your trade?

In the end, you are taking a risk on any broker you hire. That’s because some out there don’t have your best interests at heart. They mismanage your money or they may be shady in their dealings. To protect yourself and your investments, be sure to have a FINRA attorney in your corner.

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