What Brokerage Firms to Use

Who To Use For a Broker? Part 1

So you want to get into the stock and bond markets but don’t know what to do. Back in the 1970s when I first walked into a brokerage firm things were a lot different. You could stand around and talk to the retired people who had nothing to do all day but stand around and talk about the market. At that time, a person at age 21 and Black was a rare sight. The old timers would call you over and teach you a few things that wasn’t in the brokerage booklets.

Today you don’t have board rooms where people could hang out. Because of 401K programs and layoffs, people of all ages and colors have to use brokerage firm if they want to increase their retirement holdings over time. The problem has become for many people, how do I select the brokerage firm for me? First you have to know what you want to do with your money. Do you want to invest in stocks, bonds, mutual funds, insurance products such as annuities, or other products that they sell or broker?

The Full Brokerage Service

If you know nothing at all about investments and you are too lazy to learn on your own then the Full Brokerage Services might be what you need for starters. These are the big firms such as A.G. Edwards, Morgan Stanley Dean Winter, Merrill Lynch, or my families firm, Smith Barney (Citi). While these firms have much higher commissions and fees than the discount brokers, they do offer a much wider range of services than other firms. They have a wide array of search sources to reference from. They also can give you guidance on your investment program. Full brokerage firms employ financial planners who can help with Wills and Trust (working with your lawyer), college planning, retirement planning, and other major mile stones in your families life. Your personal broker will suggest investments for your portfolio and give you advise on when to buy and sell.

Brokerages have begun offering Visa Check Cards which work exactly like a credit card. The difference is, the money you spend is taken directly out of your brokerage account. This way, you have the combined functionality of a checking / savings / money market account with a stock and bond investment account. It is tremendously convenient and can help simplify your finances. If you are looking for an all-in-one solution to your banking and investment needs, an Asset Management Account may be a more attractive alternative.

But there is a downside. In the 1987 crash, my full service broker would not pick up the phone. In fact, all I got was a busy signal. In the 9/11 bear market, I heard stories from people who told me that they followed their broker’s advise not to sell their investments. After the market hit bottom, they lost almost half their investments. They listened to their broker again in 2007 not to sell but this time they lost most of their investment. Now they can’t retire. Brokers are tied to their firm and most of the time will do what their brokerage firm tells them to do. In most markets, the advise will be right but in that one in a 20 to 50 year market they can be totally wrong. But it is you that will pay that price if you don’t understand the markets and your risk.

Next time we will look at discount and specialty firms.