Online Brokers: Full Service or Discount?

Brokers have two variants: full service or discount brokerages.

Full-Service Broker

This type of brokers is said to provide high-end service, since they provide a wide selection of services including personal advice, retirement planning and tax tips. A broker will be considered a full-service if it is offering extensive investment products such as derivatives, insurance, as well as access to the company’s research. This of course has a corresponding hefty price tag. A brokerage that offers full-service are expensive, along with commissions of approximately $150. Furthermore, brokers in a full-service base their commissions on how much you trade, and not on your portfolio’s performance. In this case, it could take the lead to your full-service broker giving you signals to trade when it isn’t necessary. It’s called churning when it’s already too much.

Discount Broker 

Discount brokers charge a decreased commission, but do not give investment tips. Discount brokers offer lesser products, which is why fees are kept low. Brokers are not paid on commission, but rather on their respective salary. In order to maintain an effective system and best quality of service, the business model is built to put through the most volume.

Online Brokers and a Blurring Industry

A few years ago, some said that there is a third category of brokerage, which is those with online trading systems. Nowadays, it’s very rare to find a discount broker that is not offering online trading. Online trading had massively grown worldwide throughout the internet that had certainly benefited self-directed investors.

Some of the advantages of this type of broker include lesser commissions and greater control of investors in their trading accounts. The industry is affected by online trading as it makes the line separating full-service and discount less visible. As discount brokers have become common in the global market, they provide access into high quality research. However, the traditional full-service brokers is now offering online trading options as well. 

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