How to choose a stock broker?

Times have changed. In the same way that you no longer need to visit a travel agent’s office to plan your big vacation, you don’t need a guy in snazzy suits and a plush office to be your broker. The truth is, if your money is not managed via the Internet, you’re probably paying way too much and getting too little.

Back in 2012, The Motley Fool published an in-depth article on one of the most popular financial advisory companies and the practices their advisors use to deceive and detach their customers from their hard-earned money. (Click here if you want to read the examination in its entirety. Spoiler alert: Turns out they don’t have your best interests in mind.)

Four key takeaways from that article:

  • Of this financial advisory company’s $4.6 billion in total revenues in 2011, $1.7 billion came from commissions with another $1.8 billion coming from asset-based fees. That’s money coming directly from your returns.
  • Financial advisors are heavily incentivized based on creating transactions, moving you in and out of financial vehicles that might not even be right for you.
  • Professionals who call themselves “financial advisors” are under no obligation to put their clients first.
  • Looking at the 32-year record, a study of 2,076 stock mutual funds found the number of fund managers who beat their benchmarks over time was “statistically indistinguishable from zero.”

As the article states, “Investors shouldn’t need to worry that they’re getting fleeced by the very person who’s being paid to advise them. While that’s certainly not the way most brokers probably perceive their work, investors are at greater risk of being taken advantage of when their advisor is not required to put them first, has strong economic incentives to generate fees, and doesn’t need to disclose those conflicts of interest in a particularly clear way.”

If you take charge of your financial future, you can guarantee that you’ll have your best interests in mind. You’ll enjoy the comfort of knowing exactly what fees and commissions you’ll pay. And you can rest easy that you’ll be making decisions that are right for you.

So, how to choose a stock broker?

If you click on the Broker Center (right below our 13 Steps to Investing Foolishly), you’ll learn that you can get started at some brokerages with no cash minimum and trades that cost less than a Chipotle burrito with a side of guacamole.

Related Articles