Fed up with your broker yet?
Right now, lots of folks are. Many who trusted a professional to guide them through the ups and downs of the markets have seen huge losses -- half or more of their portfolios, in many cases. What did you pay all those fees and commissions for, anyway?
To be fair, market drops are part of life when you're a long-term investor, and lots of five-star mutual funds and high-flying hedge funds run by (supposedly) the best managers in the business have taken huge losses as well.
But consider this: Instead of paying thousands in hourly fees or commissions, you could place your money with an online broker, use its automated tools to come up with a sensible asset allocation strategy on your own time (instead of paying your investment advisor a few hundred bucks to run similar reports on a similar automated system for you), and then buy a basket of index funds or exchange-traded funds (ETFs) for, at most, $10 or $15 a trade (versus the $100 or more -- each -- a full-service broker might charge you). No 5.25% loads, no 12b-1 fees, no bills for "advisory meetings" at an eye-popping hourly rate.
And with a little research and knowledge, you might even do a lot better than you did with the adviser -- and not just by adding all those fees back into your portfolio.
Wait. I thought online brokers were for day traders!
Nope. Or, rather, they're not just for day traders. There are certainly brokerages that cater to sophisticated, active traders -- TradeStation
Lots of ordinary long-term, buy-and-hold investors manage their own portfolios with online brokerages. As you can see in our broker collection, firms like TD AMERITRADE
Brokerage without the broker
Simply put, these online brokerages aim to give you all the education and planning help you'd get from a broker at a high-end firm like Morgan Stanley
Most of them have a variety of written guides, short videos, interactive tools, and online tutorials and tours to guide you through everything from IRA setup to asset allocation to the intricacies of option strategies. Firms are now trying to provide you with just about anything you'd want from an investment adviser, including access to a vast range of no-load mutual funds from many different providers.
You may also be able to get in-person consultations and portfolio management services at a fairly low cost, in some cases.
Keep in mind ...
Of course, there's a cost for any service. You can find even lower-cost providers if you look hard -- but at some point, the cost savings may not be worth what you give up for it. Customer service may not be as important for Internet-based trading, but you still want to be sure there's someone there to answer questions or deal with problems.
Making the choice
Take the time to tour a few of these sites. Get a feel for the range of products available, see whether the site feels easy to use, and get a read on the firm's overall tone and personality. Consider whether you can get much of the education and planning content elsewhere -- here at the Fool, for example -- and what you're willing to pay extra for.
In the end, though, remember that pricing isn't all that important. Almost any online broker will save you a huge amount of money over a full-service broker or advisor. If you're only making five or six trades a year, $12 a trade versus $8 or $6 just isn't that much money. It's much more important to find the company that will give you the support you need in a way that feels right to you.
To learn more about how to choose a broker:
This article, written by John Rosevear, was originally published on Oct. 20, 2008. It has been updated by Dan Caplinger, who doesn't own shares of the companies mentioned. Charles Schwab is a Motley Fool Stock Advisor recommendation. Try any of our Foolish newsletter services free for 30 days. The Motley Fool has a disclosure policy.