At the AllThingsFinancial blog, blogger and financial planner "JLP" offered some good advice, in the form of questions you might want to ask your broker before you invest money through him or her. To wit:
- How do you get paid for giving me advice?
- Are you registered as an investment advisor and do you have a fiduciary duty to me?
- Are you giving this particular advice to me in your capacity as a broker or as my investment advisor?
- Do you or the firm you work for receive any payments from mutual fund firms to sell their funds?
- What are your credentials in financial planning?
These questions are important because not all brokers and advisors operate by the same rules. Some get paid no matter how well or poorly they serve you, others get paid depending on what they sell you, and so on. It's worth asking the above questions to understand which rules your broker is operating under.
Here are some articles that will help you interpret the answers to these questions:
- Beware of Brokers With Agendas
- A Day in the Life of a Stockbroker (an oldie but goodie)
- Advisor Center: How Advisors Get Paid
You might also want to read through the other articles in our Advisor Center.
Another broker-related distinction to keep in mind is that between traditional full-service brokerages (which we used to refer to as "full-price" brokerages) and discount brokerages. The former has been known for charging a lot while holding the hands of its clients and personally advising them on investments. The latter leaves the decision-making in the customer's hands and offers very inexpensive rates. The distinctions between them have blurred a little in recent years, as full-service fees have fallen and many discounters now offer rich stock-research information.
Examples of full-service brokerages include Merrill Lynch
Spend a few minutes in our Broker Center and you may find a brokerage that will serve your needs better and cost you less than your current brokerage. Indeed, some very reputable brokerages now charge commissions of $5 or less per trade..
Longtime Fool contributor Selena Maranjian does not own shares of any companies mentioned in this article.