Close

Brokerage Accounts: Where to Open One?

by Charles Rotblut, CFA

Brokerage Accounts: Where To Open One? Splash image

“Where should I open a brokerage account?” is one of the more common questions I am asked. My response is always, “it depends on what your needs and wants are.” Among the most important considerations are what types of investments you will make, what services you will use and what your personal preferences are. Cost does a play a role, but it is relative to the services you receive.

I give you some general suggestions that can help you make the decision as to where to open an account below. As you read them, keep in mind that this is a very personal decision. What makes sense for one person may not necessarily make sense for you.

You should also consider that your first decision does not have to be your final decision. As you develop your skills as an individual investor, you may find it advantageous to move your account elsewhere. Thus, try to make the best decision you can now, with the realization that you do have the option to change your mind in the future.

What Will You Invest In?

Do you intend to buy individual stocks, exchange-traded funds (ETFs), mutual funds, bonds or some other type of investment? This is one of the primary factors you should consider because companies vary on what they will and will not allow you to trade.

If you intend to buy U.S. stocks, bonds or ETFs, you will need to open an account with a brokerage firm. Discount brokers (e.g., Charles Schwab, E*Trade, Scottrade and TD Ameritrade) provide the most inexpensive commissions and are geared more toward do-it-yourself investors. (However, many do offer personal financial planning services.) Full-service firms (e.g., Merrill Lynch, Raymond James and Wells Fargo Advisors) provide more personal advice and services, but are also more expensive.

Mutual funds can be purchased either directly from the mutual fund company (e.g., T. Rowe Price) or through several brokerage firms. Some of the largest mutual fund companies, including Fidelity and Vanguard, provide brokerage services. There are cost advantages if you stay within their funds, and commissions for trading stocks are competitive with online brokers.

Personal Preferences

When reviewing brokers, ask yourself what services you will use. For instance, do you want a physical office that is nearby? Would a one-stop shop that can handle your checking and other financial service needs be helpful? How likely are you to read research reports? Do you need advanced online tools? Do you want a dedicated wealth advisor?

Consider which services you will really use and which don’t justify the extra cost.

Cost

Every dollar you save on investment expenses is an extra dollar you can reinvest. Over time, even seemingly small savings can add up to significant amounts.

Expenses, however, should be viewed relative to the value you receive for them. Paying extra to buy and sell a stock may be justified if the broker provides services and features that you consider useful. Higher expenses can also be justified if you receive good financial advice. As a general rule, the more complex your financial situation is, the more you should expect to pay to manage your finances.

More Information

AAII’s Online Broker Survey lists which brokerage firms your fellow AAII members prefer. You can see the 2010 results at www.aaii.com/brokersurvey/yearendresults.

We take an in-depth look at the services offered by the five online brokerage firms most used by AAII members in our Discount Broker Guide. This annual guide was recently updated and is available at www.aaii.com/guides/disc

Gain exclusive access to all of AAII.com, PLUS our market-beating Model Stock Portfolio — currently trouncing the S&P 4-to-1!

TRY US FREE for 30 DAYS!

—Charles Rotblut, CFA, Editor, AAII Journal

 

Charles Rotblut, CFA is a vice president at AAII and editor of the AAII Journal. Follow him on Twitter at twitter.com/CharlesRAAII.


Discussion

William from CA posted over 3 years ago:

When you mentioned "full service brokers", you didn't mention Edward Jones. A friend of ours is happy with them. How do they square up with the others you mentioned. Aren't the rated as one of the best?


Jerald from CA posted over 3 years ago:

I would hope that this article would have provided better information comparing the benefits and costs of the various online brokerages. For example, Scottrade has advertised that it has the best trade executions. This is a big money saver for those who want the best prices for stocks and funds. This overview article is not very useful.


Matthew from WI posted over 3 years ago:

For what its worth, I have used Vanguard for 9+ years and just recently moved all my own investments including my spouses over to them. In my opinion the site is easy to use and the non-Vanguard trades are simple to execute.


Indigo from CA posted over 2 years ago:

I trade with Tradeking and really love it. The trades are only $4.95 each and someone gave me a free $50 credit promo when I joined (which is only good for my brokerage account, not my IRA with them), so that I basically got 10 free trades. They have great educational videos for anyone wanting to learn to trade options. Execution seems great, no complaints even in fast moving markets.

I've sampled quite a few brokerages over the years (Fidelity, Vanguard, Zecco, etc.) but Tradeking is definitely my favorite and the one I'll be sticking with for my brokerage and IRA accounts. Wish they offered 401k plans. I'd move everything to them if they did.


You need to log in as a registered AAII user before commenting.
Create an account

Log In