“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/discount-broker-guide.

—Charles Rotblut, CFA, Editor, AAII Journal