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Selecting the right stockbroker is one of the most important financial decisions you can make. The broker you choose will have a major impact on your investing success. With so many options to consider, from traditional full-service brokers to online discount brokers, finding the best fit can feel overwhelming.
This comprehensive guide will walk you through the key factors to evaluate when choosing a stockbroker. Follow these tips to find a broker that matches your investing style, needs, and goals.
Introduction
A stockbroker serves as an intermediary between you and the stock market. They execute trades on your behalf and provide investing guidance, research, and tools. Choosing wisely pays off through better investment performance, more suitable recommendations, and quality customer service.
Making a hasty broker choice based on ads or brand recognition alone could cost you thousands in unnecessary fees and inferior investment returns. You want a broker who understands your personal financial situation and aims to save and make you money.
Broker Types: Full-Service vs Discount
The first decision is whether you want a full-service or discount online stockbroker.
Full-service brokers provide personal advice, account management, and extensive research resources. However, you’ll pay handsomely for the “white glove” treatment through commissions and account fees. Full-service brokers best suit investors who prefer personal guidance and can meet account minimums, often $25,000+.
Discount brokers focus on inexpensive trade execution and DIY research tools. They offer little hand-holding for a fraction of the cost. Self-directed investors who don’t require professional investment planning benefit most from discount brokers.
Most leading brokers now offer a hybrid model, blending DIY accounts with premium advisory services. For example, Charles Schwab provides extensive research, platforms, and branch access while also offering discounted trades as low as $0.
Key Broker Evaluation Criteria
Use these criteria to objectively compare stockbrokers and find your best match:
Trading Costs and Account Fees
For active traders, priority one is minimizing fees per trade, and overall:
- Commissions: The fee per trade. Discount brokers charge $0–5. Full-service brokers average $25–100+ per trade.
- Account minimums: Full-service brokers require $25,000–$100,000+ to open an account. Discount brokers have no minimum or a low $500 minimum.
- Maintenance and transfer fees: Accounts may incur annual, transfer out, or account closing fees up to $100.
- Expense ratios: For broker-managed portfolios, compare expense ratios. Lower is better.
Crunching the numbers on expected fees based on your trade activity and account size is imperative. A 1% higher fee could cost you tens of thousands long-term.
Investment Choices
The best brokers offer a wide range of investment products to build a diversified portfolio, including:
- Stocks: Access to major US exchanges, ETFs, foreign stocks, and DRIPs.
- Bonds: Corporate, municipal, treasury, and CDs.
- Mutual funds: Index funds, actively managed funds, minimum initial investment.
- Options: Equity, index, and futures options availability.
- IPO access: Allocation to upcoming initial public offerings.
Look for a broker that provides your desired asset classes and flexibility as your strategy evolves.
Trading Platforms and Tools
Serious investors need robust trading platforms, data, and analytics. Compare broker offerings:
- Trading platforms: Evaluate desktop, web, and mobile platforms. Seek reliability, speed, customization, and ease-of-use.
- Charting and screening tools: Scan for stocks based on fundamentals, technicals, and filters. Advanced charting helps identify trading signals.
- Research reports: In-depth research helps evaluate investments. See the scope of coverage, analyst quality, and reports available.
- News and quotes: Real-time streaming quotes, news feeds, earnings, and SEC filings.
- Virtual trading: Test drive platforms with paper trading before spending real money.
Select a broker whose technology will support rather than hinder your trading strategy.
Customer Service and Education
Especially for new investors, the broker’s support services impact the overall experience:
- Customer service: Evaluate wait times, availability, representatives’ knowledge, and problem resolution.
- Branch access: For full-service brokers, office proximity and support services like seminars
- Education: Guides, videos, online courses to build investing skills. Discounts on third-party education tools.
While discounts lure with low prices, make sure they deliver satisfactory support. Paying commissions buys full-service access.
Reputation and Financial Strength
Vet brokers carefully before entrusting your investments:
- Industry experience: Longer history can imply stability and wisdom, but startups may innovate.
- Regulatory compliance: Ensure proper registrations like SIPC membership to protect assets.
- Ratings and reviews: Trustpilot, BBB, Apple App Store, Google Play Store. What do current users report about their experiences?
- Financial statements: Review annual reports and audits. Firms should have solid capital reserves.
A brokerage going bankrupt could tie up your assets for months. Select an established, trusted name you’re confident will be around for the long-haul.
Top Stock Brokers: Our Picks
Here are three top stock brokers to consider across different account types and investing styles:
Best Full-Service Broker: Merrill Edge
Merrill Edge offers extensive research, tools, and branch office access under Merrill Lynch’s deep pockets. Better still, you can access self-directed accounts with no trading fees if you hold $50k+ in assets. For hands-on guidance, it’s one of the best brokers available.
Best Discount Broker: Fidelity
Fidelity delivers a powerful trading platform, zero commission trades, strong research, IPO access, and excellent customer service. With no minimums and $0 trades, it’s ideal for novice investors but also powers frequent traders with features like price improvements.
Best for Options Trading: thinkorswim
Serious options traders thrive with thinkorswim’s suite of high-end tools. Analyze volatility, test strategies, and master the Greeks while tapping into elite education and 24/7 support. Account minimums are high but the capabilities match.
This covers a sample of top stockbrokers. Further compare costs, offerings, and service against your personal preferences to select the best home for your assets.
Choosing the Right Stockbroker For You
Choosing a stockbroker comes down to matching your needs and priorities as an investor to the broker’s strengths and offerings.
Ask yourself:
- How involved do I want to be in investment decisions? If you prefer professional guidance, lean full-service. Prefer to direct your own strategy? Go discount.
- What investment products do I want access to? Seek a broker that provides your desired assets from stocks and ETFs to bonds, mutual funds, and options.
- How much can I expect to pay in commissions and fees? Calculate projected costs and aim for the lowest reasonable rates.
- What level of research tools and trading platforms do I need? Seek the best technology to support — not constrain — how you trade.
- How much support do I want for education and customer service? If you’re learning, seek lots of resources and helpful guidance. Experienced investors may just need solid self-service tools.
The best broker delivers your ideal blend of service, tools, and costs. As you grow as an investor, reevaluate periodically to ensure your broker still fits.
With the right broker, you get the freedom to efficiently invest on your own terms. By taking the time to find an excellent fit, you can trade and grow your wealth with confidence.
Frequently Asked Questions
Q: How much should I expect to pay in commissions and fees to a stockbroker?
A: Discount brokers charge as little as $0 per trade up to $5. Full-service brokers average $25-$100+ per trade depending on your account size and activity. Maintenance fees, transfer fees, and expense ratios also factor in. Crunch the numbers for your expected trade frequency and account size.
Q: Do I have to meet account minimums?
A: Most discount brokers don’t have minimums or require around $500 to open an account. Full-service brokers impose higher minimums, often $25,000 or more. Some brokers waive minimums if you opt into other fee-based services.
Q: Can I trade online with any stockbroker?
A: Most leading brokers provide robust online and mobile trading platforms. Even full-service brokers now offer self-directed trading alongside advisory services. Look for platforms that suit your technical needs and preferences.
Q: Should I choose a broker with physical branches?
A: Access to in-person branch support can benefit investors who want face-to-face service. However, online and phone customer service are often just as responsive. Branch access shouldn’t be a dealbreaker if the rest of the broker’s offerings meet your needs.
Q: How are brokers regulated for safety?
A: Reputable brokers register with FINRA and the SEC and are members of SIPC. This protects accounts up to $500,000 should the brokerage firm fail. Vet brokers for proper compliance before opening your account.
Q: Can I invest in mutual funds and bonds with an online broker?
A: The top online brokers provide diverse investment products beyond just stocks, including mutual funds, bonds, CDs, options, and IPO access. Look for a broker that allows you to invest across markets so you can build a balanced portfolio.
Q: How do I change or close my brokerage account?
A: Review the broker’s account closure policies before signing up. Most allow you to close an account online or by phone. Transfers or closures may incur fees, such as a $75 account termination fee. This should factor into your broker selection.
