Understanding stock brokers

If you have money to invest in stocks but are not sure if you need outside help or not, this post can help you understand what outside help is available to you. You have basically three choices when you need help with stocks, you can choose: online brokers, discount brokers, or full-service brokers.

Online brokers

If you can make your investment decisions with minimum or no outside help and you are internet-savvy, an online-broker may be the right choice for you. The online brokers provide plenty of research material and the latest investment news. You can view charts for a particular stock with just a few clicks.

There are number of online brokers:

Discount brokers

If you are seeking an investment advice or recommendations, discount brokers are probably not the best people for that kind of information. Discount brokers simply fulfill your order and you pay a commission depending on how large your order is. You basically have to do your own research and make your own investment decisions.

Full-service brokers

If you want investment research expertise and recommendations on investments, a full-service broker is a good choice to consider. You are likely to pay more for full-service brokers than other brokers discussed above. Why? Unlike online and discount brokers, full-service brokers have cost of maintaining research departments to help their clients understand investment choices. Here are some of the full-service brokers:

  • A. G. Edwards & Sons,
  • Edward D. Jones Co.,
  • Morgan Stanley,
  • Merrill Lynch, and
  • Prudential Securities

Working with a broker

Below are some questions to ask yourself and the broker to assess the service of your investment broker. Remember the answers to these questions won’t tell you everything you want to know about a broker but at least this will get you started.

  • Is the broker firm a large or small company? What is your preference?
  • Do you feel the broker has the right experience and educational background to serve your investment needs?
  • Is the broker available for informal meetings?
  • Does the broker specialize or have considerable experience in the investments you want to pursue?
  • What is the fee structure? How is the broker compensated?
  • Do you get information from the broker that is easy to understand or is confusing?
  • Does the broker indicate understanding (and interest) in your goals or objectives?
  • What type of recommendations do you expect from the broker? (Ask the broker what type of investment he favors to get an idea whether or not your investment objectives are in match of the recommendations.)
  • Is the broker easy to reach? Does he return your phone calls or responds to your emails?
  • How will the broker evaluate the performance of your investment?
  • Did you ask the broker for the sources for information and recommendation?

Here are some tips to deal with an investment broker:

  • Keep a record of your monthly account activity, tax forms, and any other document relevant to your dealings with the broker,
  • Evaluate carefully each broker recommendation relevant to your investment portfolio. This does not mean you have to consider every recommendation as there may be many more than you can handle.
  • Don’t authorize transactions if you are unsure or don’t fully understand.
  • If you don’t understand an investment recommendation from the broker, ask for an explanation. Also, ask for written research whenever there is a recommendation that you want to consider.
  • Ask for risk for each investment that you want to consider. Make sure you fully understand the risks before investing!
Posted on 4/15/2007
by Raj Singh