A brokerage firm is a company that functions as a liaison, buying and selling stocks, bonds, options and other financial products on behalf of their clients. Most individual brokers work as part of a larger brokerage firm that pools resources to better serve clients, and many financial services companies will have a brokerage house that is part of their broader services.
Finding the right brokerage firm for you can be an important piece of any successful retirement plan, so read on to learn about what a brokerage firm is, what it can do for you and what you should look for when selecting a broker.
What Does a Broker Do?
Without a broker, you have very limited options for purchasing stocks, so you’ll need a broker to help you actually procure investments for your retirement account. A brokerage house will communicate with exchanges to execute the trades you want. In exchange for their services, they charge a brokerage fee, usually charged on a per-trade basis but sometimes also including annual account maintenance fees.
There are many different types of brokerages out there, so you should carefully consider what you want from your brokerage, and research which firms will provide those services before settling on a company.
What Is a Full-Service Brokerage Firm?
Full-service brokerage houses are there to provide more than just the basics. A full-service broker not only executes trades for you, but they will also provide a range of other services, including but not limited to tax planning, research services, investment advising and estate and retirement planning.
A full-service brokerage will have a dedicated broker who can meet with you in person and provide you with personalized advice based on your specific circumstances. However, with that comes a higher brokerage fee since you are receiving more services.
Even the best full-service brokerage might ultimately fail to create enough value in the other services they offer to make up for the fees they charge, which can add up considerably over time. However, there are also many ways a good full-service brokerage can help you avoid paying unnecessary taxes or make investments that are suited toward your specific financial goals. It’s important to consider just how complex your portfolio is or will be, and whether or not the additional services you get with a full-service brokerage are worth it to you.
Find Out: What Is a Brokerage Account?
What Is a Discount Brokerage Firm?
A discount brokerage is a stripped-down, bare-bones version of a full-service brokerage, simply executing trades and not much else. That might mean you’re not getting a dedicated team of professionals helping you understand how you can grow your wealth, but they usually charge a much lower brokerage fee — typically a simple flat, per-trade fee.
Most online brokerages are of the discount variety, giving you a simple, direct way to make investments at the lowest possible cost. You can save a considerable amount on fees by opting for a low-cost discount brokerage and taking a DIY approach to investing, but you will be losing advice and planning a team of professionals employed by a full-service brokerage would give you. If you have a smaller account or intend on making pretty simple, straight-forward investments, a discount brokerage might be right for you.
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