At the top of the service provider list are full-service brokers. Full-service brokers today have to be much more than order takers (why use them otherwise?). Companies in this category profess to offer a complete range of financial advisory services that extend beyond picking stocks to retirement planning and meeting other financial goals.
The reason some investors turn to full-service brokers is for access to proprietary research on stocks and other financial instruments, along with the guidance of an investment professional. Many firms offer financial planning services that combine your investment accounts, retirement planning, and tax strategies. Full-service brokers maintain staffs that research and analyze stocks and bonds and offer proprietary analytical services that monitor your portfolio to minimize risk and maximize return.
Some full-service brokers also offer well-heeled investors the opportunity to participate in private offerings and provide access to hedge funds or other investments that are not generally available to the public. In many cases, to qualify for these services and products you will need a significant six-figure pool of capital for investment and have a very strong personal financial statement.
If you are uncomfortable making decisions about which stocks to buy or sell and want an experienced professional to help you, a full-service broker may be worth the large fees and commissions you will have to pay. The key to a successful relationship with a full-service broker is finding an individual within the company that you feel comfortable will put your interest before his or that of the company. The best way to find such an individual is by asking around and taking referrals from people you trust. Plan to meet with several brokers before making a decision so that the chemistry is right and you are comfortable with her experience and professionalism.
A good broker will listen to your goals and ask questions to determine what your level of risk is and suggest products that are appropriate for your financial situation, age, and goals. Industry ethics and rules prevent brokers from putting you in investments that are inappropriate for your financial situation. This doesn’t mean it never happens.
Even at their most basic service level, full-service brokers can be expensive. Commissions that might run under $15 per trade otherwise could be several hundred dollars at a full-service broker. Some full-service brokers prefer to work on a percentage of your invested assets as an annual fee. For this arrangement, they provide a menu of services. It is important that you have a complete understanding of what is included in all fees and commissions so there’s no misunderstanding at a later date.
The pros of full-service brokers:
• Offer professional help building your portfolio
• Access to proprietary research and products
• Can look at the total financial picture including retirement planning and tax strategies
Full-service broker cons:
• High fees for services
• Compensation may encourage excessive trading
• May push proprietary products that are not the best choice