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In order to achieve your financial dreams, you need to make the best investments you can. But there's more to smart money management than just picking great stocks. Increasingly, it's becoming just as important to find the right discount broker to give you the best and least expensive access to the investments you want.

How things have changed
When full-service brokers dominated the landscape, many investors chose a brokerage company based more on their personal relationships with their individual brokers than on what the particular company offered in terms of products and services. For most purposes, full-service brokers gave you equal access to any product you'd be likely to want, so you could simply pick the person you were most comfortable working with.

With the rise of discount brokers, all of that has changed. Now brokers have to fight for your business with the promise of lower costs, sophisticated products, and helpful tools to give you an investing edge. To make the most of the new environment, you need to make sure your broker matches your needs and preferences.

When brokers merge
Perhaps the most interesting phenomenon among discount brokers has come from consolidation in recent years. Given some of the difficulties that brokerage companies have faced, including low interest rates that cut income on sweep accounts and forced fee cuts on money market mutual funds, seeing various industry players merge isn't surprising.

But the novel concept that merging brokers are using is to retain their separate identities. Unlike big banks that swallow up smaller competitors whole and then quickly rename their bricks-and-mortar branches to eliminate any reference to the acquired bank's name, many acquiring brokers are counting on the differing reputations between the buyer and the target to draw a diverse set of customers.

For instance, Schwab's (NYSE: SCHW  ) proposed purchase of optionsXpress (Nasdaq: OXPS  ) involves two brokers that prospective customers perceive very differently. As the industry's first-mover, Schwab has positioned itself to be all things to all investors, ranging from its innovative commission-free ETF initiative to its customer-service focus. Just by its name, optionsXpress targets a very different investor, one who is comfortable with more sophisticated products like options. Just as TD AMERITRADE (Nasdaq: AMTD  ) chose to keep thinkorswim as a separate entity after taking over the high-octane broker in 2009, Schwab and optionsXpress have also said they would both continue existing side-by-side rather than subsuming optionsXpress into Schwab's own options-trading platform.

Price still matters
Picking a broker that matches your particular needs is important. But you also want to be able to make trades at a reasonable price.

That's a big part of the price wars that brokers have gone through for more than a year now. Many players in the industry -- including Fidelity, Vanguard, TD AMERITRADE, and Interactive Brokers (Nasdaq: IBKR  ) -- have followed Schwab into the free-ETF realm with varying degrees of success. Others, such as E*TRADE Financial (Nasdaq: ETFC  ) and TradeStation Group (Nasdaq: TRAD  ) , have remained on the sidelines, instead focusing on keeping their general pricing in line with the competition. With the huge popularity of ETFs, though, the perceived slight of charging for ETFs is a dangerous strategy for those who haven't joined the fray.

With large price reductions on standard commissions, many discount brokers now find themselves in the same general range as far as trading costs are concerned. Even companies like Bank of America (NYSE: BAC  ) offer low-cost trading to certain customers. But unless you trade frequently, a couple of dollars' difference won't make a material impact on your investing results. As a result, even cost-conscious investors will still have to grapple with more qualitative questions and compare features like investment research, transaction-fee mutual funds, customer support, and trading efficiency.

Finding the right balance
In the end, you're the only one who can figure out what the right balance is between broker style, price, and features. The answer will be different for every investor.

Regardless of what's important to you, making a smart decision on which broker you choose is essential. Having the right broker on your side can make a huge difference not just in your investment results but in how comfortable you are with your investing experience overall.

To find the best broker for your money, be sure to check out the Fool's Discount Broker Center.

Fool contributor Dan Caplinger is happy with his broker. He doesn't own shares of the companies mentioned in this article. Interactive Brokers, optionsXpress, and Schwab are Motley Fool Stock Advisor recommendations. The Fool owns shares of Interactive Brokers, TradeStation, and Bank of America; and through a separate account in its Rising Star Portfolios also has a short position in Bank of America. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool's disclosure policy gives you all the help you need.

Read/Post Comments (3) | Recommend This Article (9)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On March 22, 2011, at 6:29 PM, kydderr wrote:

    For goodness sake whatever vehicle to do trading with you choose, use a discount brokerhouse and do your own trading. That has been the diamond of The Motley Fool. You learn that with study and research, you are as good as the next guy trading the markets. ( and you have so much imput from the boards and services - MF has been and continues to be everything you need). I have been here eighteen years!

  • Report this Comment On March 23, 2011, at 9:01 AM, ozzfan1317 wrote:

    Car 1020 well said I have been doing this for 4 but so far I have a solid lead on Mr Market.

  • Report this Comment On March 23, 2011, at 5:26 PM, tomd728 wrote:

    Hey geniuses.........Just how many new clients does MF have daily,weekly,monthly, who need the very basics of this entire show ?

    New guys.......... never mind Mr.Car or OZZfeast or whoever the hell thinks they know everything under the sun.

    Go to the basic stuff and search MF for whatever it is

    you need,,,,,,,,,,,,

    Good things be yours,


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