Major Differences Between a Full-Service and Discount Stock Broker
When investing in stocks, bonds, and other market equities, you can choose either a full-service or a discount stock broker in order to make trades and place orders. A full-service stock broker can come from a national brokerage firm such as Charles Schwab, while a discount stock broker can come from a firm like E-Trade or Ameritrade.
There are several key differences between these two types of stock brokers. Knowing about their differences will make your decision process easier and help avoid unexpected surprises down the road. In summary, there are three major differences between full-service and discount stock brokers: cost, service, and access.
Cost
A full-service stock broker charges significantly higher fees and commissions compared with a discount stock broker. One example of a fee charged by a full-service stock broker is an annual account maintenance fee. Commissions for stock trades are also significantly higher, and are often set as a percentage of the stock price and quantity. For example, if a stock broker charges a 3% commission for 1,000 shares of a stock trading at $45/share, this trade will cost $1,350 to execute.
In contrast, a discount stock broker will offer lower fees and commissions. Many discount brokerage firms do not charge a yearly account fee, requiring only that you maintain a minimum dollar amount in the account. Commissions for trades are also significantly lower; most orders range from $4-$20. Some discount stock broker firms, however, may charge additional fees for account inactivity, buy/sell orders for stocks trading at less than $1, or large stock purchases.
Service
The full-service brokerage firm provides a number of services to the investor. Such firms will work with you to establish your financial goals, determine your aversion to risk, and assess your tax situation. You will be assigned a personal stock broker who will update you periodically on available stocks, bonds, and other equities. The stock broker will also advise you on which equities to purchase or sell depending on the information received from other departments within the firm and from other professional traders and analysts.
A discount stock brokerage, in contrast, will not assign a personal stock broker to you, nor will it work with you to define and achieve your financial goals. However, the brokerage may provide the means with which you can research your stocks and bonds of interest. This is often the case when the brokerage is located online and has access to SEC filings, company reports, etc.
Access
A full-service brokerage firm usually provides better access to stock brokers, accountants, and other staff. You are assured that your investment questions will be answered quickly, and that any incidents will be dealt with promptly. Likewise, if you are unsure about making a particular trade, you can contact the brokerage firm and receive timely advice from your personal stock broker.
Discount stock brokerages do provide contact information in case there is an inquiry or an issue, but the turnaround time for replies may take a day or more. Several different stock brokers may handle your inquiry or issue, and you will not obtain advice on which trades to make and when.
In summary, when deciding between a full-service and discount stock broker, it pays to ask several key questions. For example, how comfortable are you with researching your own investments? Also, how often do you trade? Do you have the time to make your trades personally? By answering such questions, you will be better able to decide whether a full-service or discount stock broker is best for you.
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