Before you can begin earnestly investing in stocks, you need to open a brokerage account–and that means selecting a stockbroker who can help assist and guide you. For beginner investors, picking a broker is an important consideration. In fact, it’s a lot like picking stocks. You want to be careful as you consider both short-term and long-term implications, and you want to pick the option that’s best-suited for your needs and goals.
To begin with, there are different kinds of brokers to be aware of. One basic distinction is the one between regular brokers and broker-resellers. Regular brokers deal directly with their clients, while a broker-reseller is sort of a “middle man” between clients and even larger brokerage firms. For first-time investors, regular brokers are generally recommended. This is because it’s far easier to get to know them and understand their credentials before you sign on to work with them. In particular, you can ensure that your broker is personally a member of FINRA or another reputable, accrediting organization.
Full-Service Vs. Discount Brokers
This leads to another key distinction: Full-service brokers versus discount brokers. You can tell what the distinction is just by the names. Full-service brokers will offer a broader suite of services but at a cost. Typically, a full-service broker will do research and come to the investor with plenty of one-on-one advice and specific suggestions. By contrast, a discount broker may offer some more basic services in executing stock transactions. While you can certainly ask a discount broker for advice, this might entail some extra fees or expenses. This does not mean discount brokers fail in offering good customer service; they just do less hand-holding for the investor than a full-service broker might. For those who are new to investing, a discount broker actually makes the most sense. The full-service brokerage will likely be too costly. And, when you start investing on a smaller scale, using a discount broker, you can actually learn quite a bit about investing yourself, helping you make better and wiser decisions in the long run.
Opening a Brokerage Account
Once you select a broker and open your brokerage account, there are a few more considerations to weigh.
- Minimums. Generally, brokers will require a minimum deposit before you can open your account. With online discount brokers, you can expect this number to fall between $500 and $1000.
- Margin accounts. At some point, you may wish to open a margin account. Because these typically have higher minimum balances, you won’t want to open one right away but it’s something to keep in the back of your head and ask your broker about.
- Withdrawals. The money in your brokerage account is, technically, yours yet in some cases, it can be hard to withdraw it. Withdrawal fees might be imposed. Make sure you’re aware of this up front and take any questions to your broker
Questions to Ask When Picking Your First Broker
These factors are all significant, yet they may not tell you the full story of your broker and his or her practices. As you speak with different brokers, here are some questions to ask:
- Are you offering any special promotions? Often, brokers will offer limited-time discounts to try to get new clients. This is especially true of those looking to work with new investors. You might get to have trading fees waived for your first few months, or something similar. Always ask!
- What is the fee structure? You always want to know exactly how your broker gets paid. For discount brokers, you can generally expect an uncomplicated fee structure. Broker-resellers will typically have more complicated structures–another reason they’re not recommended to new investors.
- Are there any fees to be aware of, in addition to the minimum balance? Be aware of whether or not your broker charges annual fees, account maintenance fees, or inactivity fees.
- What types of research does the broker do? With a discount broker, the research may be more limited–but it’s still important to ask how brokers educate themselves and make stock decisions on your behalf.
Asking these questions not only increases your own awareness, but it lays the foundation for clear, two-way communication between you and the broker.
Choose Your Stock Broker Wisely
A good broker can make stock investing more profitable–and frankly more enjoyable. Note that what first-time investors need from a broker may not be what experienced investors require. As you seek out the best broker, using some of the guidelines here, make sure you look for someone in whom you feel confident and comfortable. For those who are new to investing in stocks, this basic sense of trust is as important a factor as any other.