Investment Tips: Using A Full-Service Broker

Full service brokers offer extra services to investors for a higher fee.

One decision that investors have to make is whether to use a discount broker or a full-service broker. Full-service brokers charge higher commission fees than discount brokers do, but for some investors, the services that full-service brokers provide will be well worth the higher fees.

* Full service brokers can save investors time *

People who make investing decisions on their own need to spend time researching stocks and keeping up with constantly changing market news. People who don't enjoy doing market research or who have other things they must do or would rather be doing with their time will benefit from using a full-service broker who will have access to an in-house research department and who will do the work for them. High-income people should also consider that the fees they pay brokers will be more than offset by the extra time they will gain to devote to their own jobs or businesses.

* Full service brokers can save people from making mistakes *

Many people are not good investors. People investing on their own often make choices based on rumors, or tips from friends, or other unreliable sources of information. They may also simply follow the crowd. The danger of this kind of haphazard uninformed investing was revealed during the end of the dot-com boom of the 90's, when many people lost significant amounts of money. A good broker who can save his client from this kind of folly will be worth far more than the brokerage fees the client pays.

* Additional services *

Clients of full-service brokerages get more than just stock-picking advice. Brokers may give advice on taxes, estate planning, and other financial planning issues. Clients at full-service brokerages may also have the opportunity to invest in IPOs.

* Picking a good broker *

Different brokerage firms have different investing styles. For example, some may invest more in large companies, others more in small companies. Investors should do research to identify the brokerage firms whose investment styles are closest to their own. They should then interview several brokers, preferably in person, before making a final choice. It's important that investors feel comfortable with their brokers, so it's a good idea to find out if they are in advance.

* Things to watch out for *

Brokers make their money primarily on commission fees, so their income depends on how often their clients make trades. Unscrupulous brokers therefore encourage their clients to trade often, a practice known as "churning." Investors should not hesitate to change brokers if their current brokers pressure them to trade more often than they want to.

Investors should also keep track of how well their brokers' advice has worked out for them. As a rule of thumb, over time, an investment portfolio should at least beat the market averages.

Finally, it would be smart for investors who use full-service brokers to educate themselves about the market, at least enough to understand what it is that their brokers are recommending. That way, investors can make meaningful decisions about their brokers' advice, and stay on top of their own portfolios.

© High Speed Ventures 2011