When new investors browse the market for a broker, they winnow the field by comparing prices for buying and selling stocks or mutual funds. That's a smart move -- after all, who wants to waste their cash on high commissions?
But you shouldn't settle for a broker who's just a cheap date. Look beyond the trading commissions and commit to a broker for the long haul; find someone you can bring home to meet the folks.
Going monogamous with your finances
Assume you will eventually hold three (or more) different types of accounts with your broker -- a taxable brokerage account, a regular or Roth IRA, and a rollover IRA. Even if you're only in the market for one of these things right now, shop around like you're a customer for all three. Here's why:
- If you're hunting for a broker, you probably have some money in the bank and you're ready to get serious about investing. Cheap commissions may be the most important thing right now, but it won't be long before other services or fees will become important, too.
- If you're shopping around for a place to hold a taxable brokerage account, it won't be long before you're convinced of an IRA's tax advantages for retirement saving.
- Conversely, if you're looking to open an IRA, there's a pretty good chance that you'll see the benefits of investing and want to invest non-retirement money as well.
- The average worker has had more jobs than embarrassing high school dates, which means you may have accumulated your fair share of old 401(k) accounts. You'll want to move those into a rollover IRA.
Before we go any further, let me be clear that there's nothing wrong with holding each of your financial accounts at a different institution. If you get a better deal or better service by dividing your money, go for it. It can also pay to switch brokers if you're unsatisfied.
Keep it simple
But for most of us, time is short. Finding one broker to handle all your financial needs simplifies life. It also makes it easy to take advantage of a broker's money management tools, like portfolio analyzers, to keep an eye on things. Sometimes you'll even get a break on fees by holding a certain amount of money at a single institution, and that's easier to do if you keep all your accounts in one place.
When you keep an eye on your future financial needs, fees outside the commission schedule might appear more important. Look for fees to open or close an account, or to transfer investments from a different account. Check for IRA custodial fees.
In all cases, look at the balance minimums for different kinds of accounts, and keep an eye out for annual fees, account inactivity fees, and charges for dropping below a minimum balance.
Then, look again at the fine print on the commission schedule. Make sure you understand how much you will pay for trading. Some brokers, like E*Trade (NYSE: ETFC ) , offer the cheapest trades to the most active traders. TD AMERITRADE (Nasdaq: AMTD ) and Charles Schwab (Nasdaq: SCHW ) price online trades less than telephone and broker-assisted transactions.
You can compare a few discount brokers using this handy chart of some Foolish sponsors, then widen your search to others. Check in with other Fools on the Discount Broker discussion board to hear their experiences.
After all this, you might end up back at the broker with the cheap commissions after all. On the other hand, you may have found a broker with whom to share romantic dinners, long walks on the beach, and hassle-free investing.
Keep reading to find out: