Posted By: CFP&WM On: Feb 22nd, 2010 In: General info Money Matters

The “Best” Online Broker Dealer

Determining which online broker dealer is best is not an easy task because it depends on what services are most important to you.

Originally there was only full-service brokerages like Dean Witter, Merrill Lynch and Smith Barney. Their fees and commissions were high but that was the only way to trade stocks and bonds. Then came the development of the discount brokers like Charles Schwab who offered less services but at much reduced cost. More recently, online discount brokers have become very prevalent.

The lines are blurring between full-service brokerages and online discount brokers as the commissions and fees come down at full service brokerages and as additional services and tools are offered by the online discount brokers.

To determine which broker-dealer is best for you, focus on what’s most important for you: costs, tools, and availability of product, customer service or advice.

COMMISSIONS and FEES
Most people care about their investment costs but many do not really know all the costs. Commissions can be a little confusing because they can vary depending upon the number of trades, the number of shares, the size of account or if you do the trade your self online or have a brokers assist you. There is a whole array of other fees depending on numerous factors as well.

RESEARCH
Some investors rely on technical and fundamental analysis in determining when to buy and sell investments. Having cutting-edge research is a very important factor for these investors but will not be important at all for others.

TRADING TOOLS
Some brokers provide investors with breaking financial news via email on the clients stocks. Others allow for clients to check their balances over their smart phone or have access to trading via their Blackberry. Most have basic tools such as dividend reinvestment programs.

INVESTMENT PRODUCTS AND MUTUAL FUNDS
Having a selection of investment products that you are interested in is of crucial importance in picking the right broker dealer. Unfortunately some broker-dealers load up on funds that are laden with higher commissions or are their own proprietary funds. Most broker-dealers do have true no load funds available but you need to verify whether there’s a transaction fee involved if you purchase any those offerings.

CUSTOMER SERVICE
Some broker-dealers prefer to deal with their clients with e-mail and electronically while others rely more on toll-free phone lines customer service. Be sure to ask to see a sample statement prior to making decision as to which broker-dealer to use. You obviously want a report that is easy to understand.

LOCAL OFFICE
If you know you are the type that like to have someone nearby to help you when needed be sure to use a broker-dealer that has an office near you.

ADVICE
Many online broker dealers do not provide trading advice as to which stock or mutual fund to trade. If you want someone to help make investment decisions you could rely on the broker dealer (who is making a commission) or the services of a Registered Investment Advisor who will give you recommendations for a fee but does not receive a commission. The RIA approach has been highly recommended in the media.

For information about comparing different broker dealers try these websites
http://www.broker-reviews.us/
http://www.stocksandmutualfunds.com/broker-comparison-chart.html
http://www.smartmoney.com/investing/economy/smartmoneys-annual-broker-survey-23119/?page=all

For an RIA go to www.garrettplanningnetwork.com or www.napfa.org for a list of “fee only” advisors in your area who can recommend investments that do not pay commissions.

Michael Chamberlain CFP®
CA Registered Investment Advisor

Send your questions to mike@chamberlainfp.com or call 800-347-1340

This article is for informational purposes and should not be taken as legal, tax or investment advice.

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