No matter how good an investor you are, you can't do everything by yourself. Even if you do all your own research and analysis, digging through thousands of stocks and funds in search of the perfect investment, you still need a strong broker on your side at the end of the day to help you buy those investments, sell others, and eventually create the ideal portfolio.
Making sure you have the right broker on your side can make a huge difference in how successful you are over the long run. But how can you tell whether a particular broker will give you everything you need? You can get some of the answers by following one of many broker surveys that regularly come out, as long as you recognize the fact that brokers are not one-size-fits-all and that your specific needs may lead to a totally different decision.
A new winner
Kiplinger recently came out with its list of best online brokers for 2012. Given the cost savings that online brokers can give you compared to Morgan Stanley (NYSE:MS) and other full-service offerings, many investors turn to them first.
If you look no further than the headline, you'll see that E*TRADE Financial (NASDAQ:ETFC) beat out all its peers to take the top spot. With E*TRADE earning top ratings for investment choices and customer service, countless readers will inevitably pick the discount broker simply on that basis alone.
But if you dig deeper into the report, you'll realize that different brokers do well at different things. For instance, for research tools, Fidelity scored the best. For the best user experience with their websites, Scottrade and Bank of America's (NYSE:BAC) Merrill Edge joined E*TRADE as top picks. And for those looking for banking services to go along with their brokerage accounts, Merrill Edge and Fidelity received top scores.
Even with this added level of scrutiny, you still can't rely entirely on the report for definitive advice. For instance, one big omission from the list is Vanguard, which didn't even make the cut for consideration.
In addition, drilling down beyond broad categories often leads to different results. For instance, the primary motivation for E*TRADE's strong score for breadth of investment choices came from its extensive individual bond offerings. Yet if you want to invest with exchange-traded funds, then E*TRADE falls short, and TD AMERITRADE's (NASDAQ:AMTD) list of more than 100 commission-free ETFs from a variety of different ETF providers easily goes to the top of the list. If you prefer a certain brand of ETFs, though, you might be best served by a broker that has a specific relationship with that ETF provider, such as Fidelity's deal to offer 30 different offerings from BlackRock's (NYSE:BLK) iShares family of ETFs.
Dealing with costs
Perhaps the most contentious area in trying to compare brokers is cost. The most readily available piece of information is how much a broker charges for stock commissions, but if you're not a frequent trader, that number may not be nearly as important as other fees.
To make a better choice, be sure to consider how you're likely to invest and what sorts of miscellaneous fees you're likely to incur. Don't just look at the cover page for that information; dig deep into the brokerage agreement to ferret out obscure charges like inactivity fees or account closure and transfer fees. That way, you'll avoid a nasty surprise at some point down the road.
Go your own way
Guides and lists of brokers can be helpful in gathering information you can use to make an informed selection, but don't simply take a recommendation from a survey without understanding its methodology. That way, you can be sure that the broker you choose will be right for you.
Be sure to check out the Fool's Broker Center to get more help on picking the right broker.
Fool contributor Dan Caplinger doesn't own shares of the companies mentioned in this article. You can follow him on Twitter @DanCaplinger. The Motley Fool owns shares of Bank of America. Motley Fool newsletter services have recommended writing puts on TD AMERITRADE. 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. The Fool's disclosure policy wants you to succeed.