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Full-Service Broker vs. Discount Broker: Which Is Right for You?

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Brokerage accounts are a gateway between the investor and the investment professional. When it's time to choose a full-service or discount broker, dozens of companies will compete for your business -- so it can be challenging for any investor to pick the right broker. 

Below, we'll look at the full-service vs. discount broker toss-up more closely, presenting pros and cons you can use to make an informed choice.

Full-service broker vs. discount broker: what's the difference?

There's a big distinction between full-service and discount brokers. You'll find differences in the level and types of services as well as costs when you consider a full-service vs. discount broker. The choice you make can have a big impact on your investing experience as well as how much you have to pay to invest.

Discount brokers

A discount broker is a company that allows you to buy and sell stocks or other investments online. Think of this as a self-service option for investors. Despite their name, discount brokers tend to have many favorable traits such as low commissions and trading fees, and easy-to-use online trading platforms. Many discount brokers also have educational tools and resources available to help guide your investing, but there's typically not an advisor placing your orders.

Discount brokers are a great option for many, if not the majority of investors -- especially beginner or first-time investors.

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Full service brokers

In a fully managed investment account, the brokerage company has full discretion to trade on your behalf. This often appeals to busy people who don't have the time or inclination to manage their own investments.

The main downside to a full-service brokerage is the high cost. Commission rates aren't quite as high as they once were, but you can still expect to pay a lot more per trade with this kind of service than you will with a discount broker. Those who take advantage of management services often pay a percentage of their total assets in fees each year. Typical full-service offerings are priced from 1% to 2% or more. You could pay thousands of dollars in annual management expenses for a $100,000 brokerage account.

For some, that might seem well worth the cost not to have to worry about investments. But as you'll see below, investing with a discount broker isn't as hard as you might think.

How to choose between a full-service broker and a discount broker

The full-service vs. discount broker decision depends on the level of service you want and how much you're willing to pay for it. In the end, either type of broker can help you reach your investing goals. Select the choice that will match up best with your preferences. 

You might want to give a discount broker a try if these are true for you:

  • Don't have a lot of money to invest and can't afford to spend large amounts on fees or commissions
  • Prefer to make your own investing decisions and don't want to be bothered by salespeople
  • Comfortable using online or mobile interfaces for financial transactions
  • Good at learning how to use tools and resources to get the insight you need to make smart decisions with your money
  • Have access to other financial professionals and don't want a new opinion added to the mix 

By contrast, a full-service broker is worth a look if these characteristics fit your situation: 

  • Intimidated (or scared to death) by the entire idea of investing
  • Prefer to have a qualified advisor walk you through each investment option before you make a choice 
  • Have a high net worth and can qualify for the slightly lower fees that a top-shelf investment service offers 
  • Want nonfinancial value from the relationship (like professional or social networking opportunities)
  • Already work with an institution for private banking, wealth management, or commercial business and want to add their brokerage to your business dealings 

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Full-service vs. discount broker: Make the smart choice

For most investors, choosing between a full-service and a discount broker is straightforward. A discount broker is often the better choice. Given how expensive typical full-service brokers are, you have a big financial incentive to learn how to use a discount broker effectively. Not only will you save on costs, but you will hopefully end up smarter about managing your money.

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