At the AllFinancialMatters blog, financial planner "JLP" offered some good advice regarding questions you might want to ask your broker before handing over your hard-earned cash. 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. It's worth asking the above questions to understand the rules under which your broker operates.
Another broker-related distinction to keep in mind is the difference between traditional full-service brokerages (which we used to refer to as "full-price" brokerages) and discount brokerages. The former is known for charging a lot while holding its clients' hands, personally advising them on investments. The latter leaves the decision-making in the customer's hands, but offers very inexpensive rates. The distinctions between them have blurred a little in recent years; full-service fees have fallen, while many discounters now offer rich stock-research information. Full-service brokerages include Merrill Lynch, Citigroup's Smith Barney, and Morgan Stanley, while discount brokerages include Fidelity, Schwab, TDAmeritrade, and E*Trade.
Spend a few minutes in our Broker Center to see whether there's a better, less expensive broker out there for you. Some very reputable brokerages now charge commissions of $5 or less per trade.
Get more information on picking the best broker:
- Beware of Brokers With Agendas
- A Day in the Life of a Stockbroker (an oldie but goodie)
- Advisor Center: How Advisors Get Paid
Foolish research associate Katrina Chan has updated this article, which was originally published on August 2, 2005. Katrina does not own shares of any companies mentioned in this article. The Motley Fool has a full disclosure policy.
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