Using the Discounter

The Discount Brokerage Industry: Part 2

You want to use discount and specialty brokers when you feel that you have enough confidence in yourself to make your own buy and sell decisions. Discount brokers are far less expensive than the full brokerage firms. That also means that you will be offered less services than what a full brokerage firm will offer you.

Discounters have a broad range of services. Discount brokerage firms can offer almost the same services of a full brokerage firm to just offering stock and bond execution services. So you have to know what services you want and ask questions as to what the discounter is offering. You have to interview the firms just like if you were going to hire them to do a job. In fact, you are hiring them to do a job. So know what they can do for you before you commit your money to an account with them. If you are hiring them to buy and sell bonds for you, know if they have a large enough bond inventory to choose from. If it is stock execution that you are after, make sure that they have computer equipment that can buy and sell for you in less than 5 minutes at a very cheap price. If you are looking to have some "hand holding" such as research or advice but at a price less than you would pay at a full brokerage firm, make sure that they can help you with the special need that you require.

The dark side of bond executions with a discount or specialty broker is that you as a client is closer to the trading than if you would use a full brokerage service. Because of the change in the economy, I was forced to change my investment strategy or model to fit the current investment climate. I called my discount bond broker Zions Direct in Salt Lake City, Utah to execute the trade for me. I asked that my long term bond issue be sold at a specific price on the next days trading. At a full brokerage firm, my personal broker would have taken care of that for me. But not with a discount or specialty firm such as Zions Direct.

When selling Corporate Bonds you have to tell the broker who answers the phone that you are interested in selling your bonds. When the market is trading, the firm will put the issue out for bids to other firms around the world since the Corporate Bond Market is mostly an "Over the Counter" Market. As a client, you will have to check back with the firm in about 30 Minutes to see if someone offered to buy them and at what price. At that time, you except the price and sell or refuse to sell. If you refuse to sell, you may want to put them out for bid a few hours or days later. So you as a client may have to act as your own Bond Broker Dealer.

With discounters, you may have to use the library and the internet to do your own research on companies that you are interested in. Some discounters have news services where you as the client can look up public company information and opinions from professional investment analyst.

Next we will look at short term bond strategy for use in your investment model.