BROKERS vs. ONLINE SERVICES
If you plan to buy stocks and bonds as part of your investment portfolio, you will need to either choose a broker (full service or discount) or sign-up for an online service.
What is a Broker?
A broker is a licensed professional who monitors investments and gives advice on stock purchases for a fee. The fee can be either a percentage of your portfolio or a per transaction fee. Brokers may also make commissions on some of the investments they sell.
Before selecting a broker, make sure your candidate is part of the Securities Investor Protection Corporation (SIPC), a nonprofit corporation that can protect your interests up to $500,000 if the broker should become insolvent. Also call the National Association of Securities Dealers' (NASD) toll-free hotline at 1-800/289-9999. The NASD can tell you if there has been any disciplinary action against a particular brokerage firm or sales representative.
Discount brokerage houses generally have lower fees than those touted as full-service. They employ brokers who, primarily, are order takers and may, or may not, give investment advice. If you use a discount broker, be sure you are well-informed about stocks and can make your own investment decisions.
What are Online Services?
Online services allow you to buy your own stocks, bonds, and mutual funds for significantly lowered fees, but not without risk. Although research is available, you are making your own investment decisions.
Most online services provide varying levels of research, news and customer service. You should also become familiar with the online brokerage commission schedule and fees before joining or trading through an online service. Keep in mind, too, that some online services offer delayed quotes, others have real time quotes; some excel at customer service and, for others, it may be nonexistent. Online services have different levels of strengths so, again, be well-informed before using one.
Do Some Research
However you decide to buy stocks, from a full service broker, discount broker or online service, research each option carefully and make sure it meets your investment needs.
