Stock Market: Choosing a Stockbroker

 

It is true that, although you can choose your own investments, you must use a broker to execute the orders.

You don't need to trust their advice, but it can be helpful. You can make your own selections, but you will still need their services to invest.

There was a time when you had no choice about the type of broker to use. There was only one type of broker, full service brokers, and they controlled the market.

The commissions they demanded for their services were very high but this was the industry standard.

This contributed to the notion that the stock market and stock market investing were beyond the reach of the average person and only for the very wealthy.

The initial loss of market control by these full service brokers occurred in 1975 and discount brokers emerged.

They charged a fraction of the fees charged by full service brokers and as such were a huge hit in the market.

They offered the same great services, but were affordable for the average individual, as the costs were significantly lower.

Another great innovation was the introduction of the Internet.

This was a great innovation as there was increased business efficiency as a result.

The overall effect of all the changes in the stock market was that people now had access to a ton of information that they never had access to before.

However, it is a debate whether these avenues have in fact improved investments and made better investors.

For people doing their homework and searching for the truth behind the hype, the answer is a definite yes.

Investors can now choose the type of broker they need from the available range.

There are four categories of runners. These are the discount / online broker, the discount advising broker, the full-service broker, and the money manager.

The discount / online broker is basically an order taker. They don't offer advice and won't tell you when to buy or sell stocks.

Research and other account management tools may be available, but the choice of investing in the stock market is entirely up to you.

The variation of the discount / online broker that helps customers is the nest type.

They do not offer full consultation services, but will have more research sites than order-taking sites.

They will offer newsletters and investment advice, but will most likely not recommend particular stocks.

You are not totally alone with this option, but you will still have a lot to do in deciding what the best equity investment is.

The full service broker will provide recommendations on specific actions and the broker will also access your financial situation to determine your investment needs and options.

This service is suitable for the investor who does not have the interest or the time to make investment decisions.

The money manager is made for the investor with a considerable investment sum.
 
This broker will handle only significant portfolios and will invest and manage the entire account for a percentage of the assets under investment. This option can be expensive but very profitable in the long run.

Whichever option you choose, make sure it suits your purpose and is covered by the Securities Investor Protection Corporation.

Ask about backups and other options in case of technical problems and make sure your broker cares about you.