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What You Really Need From Your Broker

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Picking the right broker is one of the most important decisions you'll ever make for your investing success. But with all the noise surrounding what makes a broker truly great, you need to make sure that you ignore things that aren't really essential and instead focus on the key components that will have the greatest impact on your investment results.

Much ado about seconds
Early last month during the height of the market's correction, Gomez.com took a look at how quickly a number of brokerage companies executed customer trades entered on their online websites. When it did its test, the average response time ranged from 3.1 seconds to 20.8 seconds, with Fidelity, E*TRADE Financial (Nasdaq: ETFC  ) , and Charles Schwab (NYSE: SCHW  ) coming out on top. An earlier SmartMoney survey also identified Fidelity as a winner, with Vanguard clocking in as a clear laggard with an 18-second average trade time.

But anytime you see a survey like this, the first question you should ask yourself is whether what the survey is measuring is actually something you care about. Sure, if you count on day-trading income to survive, then milliseconds matter. But if you execute just a handful of trades every year, then you're never going to be all that sensitive to whether a trade takes 2 seconds or 20 -- the effect just won't be material to your own investing.

What to balance
In the end, which broker is best for you depends on your personal preferences. But here's a list of traits that you should consider in picking a new broker:

  • Price. Even among relatively inexpensive brokers, you can find some differences in commissions. Interactive Brokers (Nasdaq: IBKR  ) , for instance, has stock trades as cheap as $1, while some bank-based brokers including Wells Fargo (NYSE: WFC  ) and Bank of America's (NYSE: BAC  ) MerrillEdge actually offer commission-free accounts with a limited number of trades and other restrictions.
  • ETF availability. Increasingly, exchange-traded funds are an essential component of investors' portfolios, and brokers are making arrangements to bring them to customers without commissions even when they charge for regular stock trades. Whether you go with Scottrade, TD AMERITRADE (Nasdaq: AMTD  ) , or a host of other brokers that offer commission-free ETF trades, the right combination of funds can make a big difference.
  • Research tools. Some investors rely exclusively on their broker's websites for stock research and analysis, while others get outside information and couldn't care less what their broker offers. If research is important to you, check out competing brokers' websites and pick the one that has the most value to you.
  • Customer service. Using a discount broker doesn't mean you have to be all alone. Many discount brokers differentiate themselves based on the service they offer, including everything from facilitating transfers from other accounts to helping put together an investing plan for you to follow. How important that is to you depends on whether you're new to investing or already have a strong plan in place.

For some, it's the entire package that a broker offers that's important. With more brokers offering full suites of financial services, including bank accounts, credit cards, and loan products, convenience can be a vital factor in making a final decision about a broker.

Get what you need
The key advantage you have in choosing a discount broker over a full-service company like Morgan Stanley (NYSE: MS  ) is that you get to tailor your brokerage experience to what you want. Rather than paying an arm and a leg for things you don't need, you can go straight to the broker that provides what's most important to you.

The lesson, though, is that you can't afford to get caught up in broker attributes that make no difference to your investing results. By keeping your eye on the ball, you can focus on the traits that will truly help you be a better investor.

Do you need help finding a broker that will do a better job of meeting your needs? Go to the Fool's Broker Center and learn more about the brokers that cater to investors like you.

Fool contributor Dan Caplinger can't always have what he wants, but he gets what he needs. You can follow him on Twitter here. He doesn't own shares of the companies mentioned in this article. The Motley Fool owns shares of Interactive Brokers, Wells Fargo, and Bank of America, and has created a ratio put spread position on Wells Fargo. Motley Fool newsletter services have recommended buying shares of Schwab and Interactive Brokers. 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. You really need The Fool's disclosure policy.

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Dan Caplinger
TMFGalagan

Dan Caplinger has been a contract writer for the Motley Fool since 2006. As the Fool's Director of Investment Planning, Dan oversees much of the personal-finance and investment-planning content published daily on Fool.com. With a background as an estate-planning attorney and independent financial consultant, Dan's articles are based on more than 20 years of experience from all angles of the financial world.

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