The Sharebroker

Full Service vs Discount Brokers
Sometimes you have to determine which type of process you require. Here is a general description of services offered by full service and discount brokers, so you can see the type of broker you may need:

  1. Full Service Brokers:
    These brokers tend to offer a wide variety of financial products, as well as investment advice. They carry out more of this than do discount brokers and they charge a higher fee. A full service broker can solicit business and is paid mostly through commissions.

    This means that the broker is not rewarded according to how well your portfolio does, but how often you trade with them. This means that it’s in their interest to have you trade as often as possible, which is one of the main reasons why full service brokers are not always recommended.

    They provide a personalised service, as well as research, and you can pick their brains, if you need any advice on any particular areas of investing. Some full service brokers also offer discretionary management of your money if you require this.

  2. Discount Brokers:
    Discount brokers don’t offer any advice or research; they simply transact your trades, with no frill attached. Because they manage fewer products than their full service counterparts, they charge considerably less. They don’t solicit and they are not paid commissions.

    These brokers make money by doing business in volume and therefore compete mostly on price and reliability of the service. If they have the lowest prices and the best service – they will get the most trade. Discount brokers are especially useful if you are buying managed funds. They can reduce the fees involved in this area.

The Disadvantages of Full Service Brokers
Many people favour discount brokers who will execute trades at a much lower cost than the full service brokers. Some people feel that most brokers who give advice are just 'glorified salespeople'. They get paid a percentage commission for every sale they make.

 There are some brokers who are very good and do a great job for their clients, but there are others who are not good investors and lack the track record of performance in this area.

Another problem is that full service brokers receive commission on each trade, so their compensation is tied in with how often their clients are trading. In other words, the commission you pay to the firm may wind up directly in your broker’s pockets.

Online Brokers
Online trading has exploded over the past few years as investors are becoming more self-sufficient and comfortable with using the Internet for their investing requirements.

That’s fine for those who are technically minded and comfortable with trading on the Internet, but you have to see if it’s right for you. It’s a great thing to be able to access your account information 24 hours a day and place a trade, but many people like the idea of using an online brokerage account while others prefer to deal with a real person when they are trading.

Some discount brokers offer both options and the price of transacting a trade with a real live human being is somewhat higher than if you conduct it on the Internet yourself.

If you are shopping around for an online discount broker you need to ask plenty of questions about the customer service. Even though online brokerage is an easier process and provides you with more information, you need to know how you can access your account information if you cannot get online for some reason.

Are the cheapest Brokers the Best?
Many advertisements for discount brokers focus on the price per trade, that is, the commission you have to pay them. While choosing the broker who provides the absolute lowest price might be attractive and might even make financial sense, you may find that there is a trade-off between service and price.

The cost of trading is not the only factor to consider when shopping for a discount broker. Other fees could be involved and should be factored in. In any even, you need to weigh up the service with the cost, because cheapest is not always best. It’s a good idea to make customer service a priority and not worry too much about whether you have made the right choice.