The first step in investing is choosing what type of stockbroker you want to use. If you're new to investing, you're likely choosing between a full-service stockbroker and a discount stockbroker. Otherwise, you may be looking into using a financial planner to manage more than just your stocks. Each type of broker charges different fees and provides different services. Choosing a stockbroker type depends on your personal situation and the types of fees you are comfortable paying.
Full-service stockbrokers usually use an established fee structure based on the total value of your investment account. Using a total fee means that the stockbroker doesn't charge for each individual transfer of a particular stock. Instead, you pay the stockbroker a yearly fee to not only buy and sell stock but to also help you with things like investment advice and rebalancing your portfolio. These full-service stockbrokers usually charge between 1 and 2 percent of the total amount of assets they manage for you.
Discount stockbrokers provide only some of the services that full-service stockbrokers provide. Instead of providing additional services like financial advising and portfolio rebalancing, discount brokers only buy and sell stock on your behalf. Because they provide more limited services, most discount brokers charge a fee per sale. Most discount traders charge between $5 and $30 per trade, although some online firms now charge $0 per trade.
Financial advisers are not stockbrokers, but they work with you to manage all of your money, not only that which you invest in the market. This may mean that they may help you buy and sell stock, and they also may help you to create savings and retirement plans or manage an estate. Financial advisers generally charge 1 to 2 percent of the amount of money you have them manage.
One thing about which to be careful when choosing a stockbroker or financial adviser is any hidden fees that he may charge. These types of hidden fees can increase the total cost you pay and may make investing less lucrative. Some brokers, for example, charge you a fee if you decide to change investment firms. These account transfer fees can add up. Additionally, if your broker doesn't make any sales or buy any stock for you over a certain period of time, you could be charged an inactivity fee. These types of fees may make a difference when deciding which type of broker is best for you.
Bea is a personal finance and legal writer based in Texas.