Brokerage Account Management

If you’ve decided what type of brokerage-accounts you’re interested in, the next step would be to choose who will manage your money and how to begin opening your account. Choosing the right brokerage service that aligns with your individual goals, educational needs and learning style are crucial to understand before investing your hard-earned money.

What Is a Broker?

A broker is either an individual person or firm that acts as a mediator between an investor and a securities exchange. When an investor wants to invest in market securities like stocks, funds, bonds, etc., they contact their broker to make those transactions. Depending on your individual goals and resources, you’ll want to decide if you will be managing your account personally or relying on a broker for their managing services.

What Is a Managed Brokerage Account?

A managed brokerage-accounts means you will be giving full authority to a firm to handle your investments and portfolio. This means that they will use their internal resources to help you maximize your investments; however, they will act autonomously unless given separate direction.

With the rise of online trading, managed brokerage-accounts have been on the decline for the last few years. However, there are a few benefits that come with opening a managed brokerage-accounts such as:

• Brokerage firms have more data and knowledge for potential investments
• Smart tax management in order to maximize your tax deductions and minimize the impact of taxes on your gains
• More time to focus on your primary career, rather than managing your portfolio
• Takes the emotional/psychological aspects of investing out of the equation
• Access to more investment options compared to a self-directed brokerage-accounts

The brokerage-accounts manager will make transactions that they believe to be in the best interest of the investor. Additionally, the manager will give the investor regular reports on their account’s performance and holdings so they know how their accounts are doing over a period of time.

It’s crucial to note that a major disadvantage of choosing a managed brokerage-accounts is the hefty price tag. Usually, firms will charge you commissions or additional management fees and may require a minimum amount of cash to invest. Additionally, managed brokerage-accounts offer far less flexibility than if you go the self-directed route.

What Is a Self-Directed Brokerage Account?

In contrast with managed accounts, self-directed brokerage-accounts allow investors to take full control of their portfolio. In this case, your brokerage-accounts will allow you to make transactions for various market securities, but you will be the manager of your own assets. A few benefits of choosing a self-direct brokerage-accounts include:

• Much less expensive than a managed brokerage-accounts
• Full autonomy when choosing what investments to put your money into
• You aren’t locked into a narrow selection of funds picked by a brokerage firm
• More options and overall flexibility

However, it’s important to realize that self-directed brokerage-accounts often require a certain amount of time to do your own research and manage your portfolio, especially if you’re invested in shorter-term securities.

Differences Between Financial Planners and Investment Advisers

After you’ve decided if you are going to open a managed or self-directed brokerage-accounts, you may want to consider if hiring a financial planner or investment adviser is right for you.

It’s important to understand that financial planners and investment advisers are not brokers and vice versa. As we explained previously, brokers act in a mediatory way when trading market securities. In contrast, neither financial planners nor investment advisers directly handle any of your money or assets. In general, financial planners and investment advisers provide guidance when it comes decisions about how to manage your money.

The main difference between financial planners and investment advisers is that planners are focused on advising you on issues such as how to set aside money for retirement, how to effectively plan your estate and other long-term investment goals, whereas investment advisers gives direction on how your money should be invested in market securities.

It’s important to note that both planners and advisers can be expensive and may not offer you extensive services. If you’d like to handle your own portfolio and assets, there are countless educational resources and tools available online where you can avoid extravagant fees.

What Are Robo-Advisers?

If you want to have help planning for future financial goals, but don’t want to pay the expensive bill for a financial adviser, you may want to look into robo-advisers. Robo-advisers use technology to optimize your portfolio. However, unlike major trading algorithms that can be found at prominent hedge funds or banks, robo-advisers suggest low-cost funds that have extensive online data. Some examples of robo-advisers are SoFi and Betterment, two top-rated robo-advisers that can be used with little investing experience. Some benefits of relying on robo-advisers for financial planning include:

• Following optimized indexed strategies
• Providing investors with low-cost services with high returns
• Removing emotional aspects of investing to maximize your risk tolerance

However, even though robo-advisers tend to follow specific data and trends, there are a few drawbacks such as lack of human interaction and far less flexibility and options when it comes to the types of securities they can invest in.

Robo Adviser Versus Financial Adviser

If you’re trying to decide between a robo-adviser versus a financial adviser, there are a few aspects to consider: Financial advisers can offer unbiased advice but are typically more expensive than robo-advisers. However, robo-advisers may be cheaper but can still make errors due to a lack of human understanding.

Also, it’s important to understand whether a company is offering robo-advisers or financial advisers, as some companies may try to gloss over this distinction. Ultimately, choosing between a robo-adviser and Q financial adviser will depend on your individual investment goals and needs.

Differences Between Individual and Joint Brokerage Accounts

Before you open a brokerage-accounts, it’s important to consider who will manage your assets, but also who the official owner is. The main difference between an individual and a joint brokerage-accounts is who the primary owner(s) is and if the account will be shared or not. An individual brokerage-accounts is owned by one singular person. In contrast, a joint brokerage-accounts is shared by two or more individuals like a married couple, family members or even a business partner. The decision between opening an individual versus a joint brokerage-accounts is ultimately up to the investor; however, there are a few benefits and disadvantages you should consider before making the choice that fits your individual needs.

Pros of Joint Brokerage Accounts

There are three main advantages of opening a joint brokerage-accounts:

• Managing one joint brokerage-accounts can be more convenient and overall easier to keep track of compared to having multiple accounts under the same household or business practice.
• Elderly parents can allow children or other trusted individuals to manage their affairs and assets if they become ill or cannot continue managing their own investments.
• Estate planning is simplified when the joint accountholder automatically takes full ownership of the account upon the other accountholder’s death or incapacitation; therefore, conversations with lawyers on who will take over are convenient and easy.

Cons of Joint Brokerage Accounts

In contrast, here are three main disadvantages of opening a joint brokerage-accounts:

• In a joint brokerage-accounts, multiple people will have access to your assets, which means they can buy or sell as they please.
• Assets that are targeted by creditors will impact any of the joint brokerage-accounts owners, putting them all at increased risk.
• Tax consequences such as gifting or contributions can be misconstrued if it is not balanced or figured out beforehand.

Overall, it is up to you to determine if an individual or joint brokerage-accounts is right for you; however, an individual account is often safer if you’re just beginning to invest your money.

How to Open a Brokerage Account

So, you’ve decided who will be managing your assets and you’ve chosen if you want an individual or joint brokerage-accounts, now what? It’s finally time to open your own brokerage-accounts in six easy steps.

1. Choose your brokerage-accounts
2. Create an account or begin the application process
3. Link your checking or savings account with your brokerage-accounts
4. Acknowledge that your funds have transferred
5. Start researching potential investments by utilizing stock screeners as well as other resources
6. Place an order for your first market security (stocks, funds, bonds, etc.)

Before you set up your account to begin the application process, you will want to make sure to have all of your information on hand such as your Social Security number, date of birth, address, passport, as well as employment history. You also may need to fill out questionnaires regarding your risk tolerance and how much experience you have with investing, as well as provide general information about your tax status, employer-sponsored retirement accounts or outstanding mortgages. The amount and type of information required will depend on which brokerage firm or account you choose.

Does opening a brokerage-accounts affect credit?

No, opening a brokerage-accounts will not affect your credit because the process does not require the broker to perform a hard inquiry on your credit history. A hard inquiry refers to when a lender sends in a formal request to a credit bureau to review your official credit report in the case that you want to take out a loan or mortgage.

Lastly, margin accounts don’t affect your credit either because you are leveraging current assets and the loan is seen as an internal loan, versus inquiring debt.

How do I take money out of an individual or managed brokerage-accounts?

Unlike with your regular bank, withdrawing cash from either self-directed or managed brokerage-accounts may require time and patience. This is because you may need to sell some current stock, funds or bonds, wait about two to three business days depending on the account and then request a fund transfer from your brokerage to your bank.

It is recommended to minimize how often you withdraw money from your individual or managed brokerage-accounts because of time constraints and decreased investment potential. Instead, keep some uninvested money in your account or enough cash in your regular savings or checking account to prevent the need to withdraw funds from your brokerage-accounts.

Additionally, if you have a joint brokerage-accounts, withdrawing funds may need consent from the other account holder/owner depending on what securities you’ve set in place.

Managing Your Assets Within a Brokerage Account

Now that you have the basics of which brokerage-accounts may be right for you and who you want to manage your assets, you’re ready to start taking control of your investment future. We recommend that individual investors to do their own research about brokerage-accounts management before deciding on the style you’d like to rely on.

It’s also important to understand how terms like robo-adviser versus financial adviser differ as well as the differences between brokers and investment advisers. This will help you make informed decisions about who you want giving you advice as well as managing your brokerage-accounts.

Finding the right brokerage-accounts management shouldn’t be confusing, that’s why at AAII we aim to help investors take control of their financial destiny with helpful educational resources. If you’d like to learn more about AAII’s extensive selection of educational tools and resources, A+ Investor gives members access to customizable stock screens and grades that you can use to build a personalized portfolio.