The lure of the stock markets is powerful, regardless of the economy. Why? Well, as the saying goes: In every situation, there’s a winner and there’s a loser. With stocks, it’s the same way. When the economy is booming, those who bought into the market prior to the boom are making money and those who didn’t will have to pay a hefty margin to get in on the action—resulting in a lower return on investment for those investors—or not buy in and lose out completely. However, when the economy is on a downward turn, the exact opposite is true; the losers become winners and the winners become losers. The one potential equalizer that can often make the “coin of possibilities” stand on its edge: the stockbroker.
While one duty of a stockbroker may be to facilitate the buying and selling of stocks, it is not the stockbroker's only task. A stockbroker is also an adviser for his clients, who must understand the stock markets inside and out, have the ability to analyze the economy and the financial markets, and make informed investment decisions that will ideally lead to a profit for his client.
Full-Service Stock Brokerage Firms
Full-service stockbrokers work for stock brokerage firms that not only submit requests for buy or sell transactions but also provide key information about the transactions investors want to make. Some of the services a full-service stockbroker may offer include providing research on stocks, collecting data on economic and stock market trends, and making recommendations based on an investor’s financial goals. Stockbrokers work for virtual firms, meaning those that operate solely as an online entity, as well as storefront stock brokerages with physical office locations. As such, the information that an investor receives—whether from a virtual stockbroker or a traditional stockbroker—should be held to the same standard.
Discount Stock Brokerage Firms
At a discount stock brokerage firm, the investor is the stockbroker. That’s to say, an expert is not available whom an investor can speak with to obtain advice on an investment. Instead, the investor must determine what is a wise investment and what is not. With that said, the investor-stockbroker who uses a discount stock brokerage firm may have some of the tools and reports available to her that a professional stockbroker has, and those tools can be helpful if the investor-stockbroker knows and understands how to use the tools properly as well as how to analyze the information.
The fees investors must pay to a stock brokerage can vary greatly. For instance, a full-service stockbroker may charge anywhere from $400 to $700 for a single transaction while a discount or online brokerage company may charge $5 to $25 per transaction or no brokerage fee at all. Therefore, ask about or research brokerage fees when deciding on a brokerage service. In addition to fees, investors will also need to pay stockbroker commissions. The commissions stockbrokers earn vary by deal. However, the commissions are often based on the price and quantity of the stocks being purchased and sold and the negotiations involved with the stock transaction. Of course, if an investor chooses a discount brokerage firm, he may not incur any commission fees at all.
While investors should certainly shop around for the most competitive brokerage and commission fees, those costs should not be the driving force behind whether they choose to hire a full-service stockbroker to manage their stock transactions and investment portfolios. Instead, they should take stock of their stock, financial investments, economic knowledge and their level of risk aversion before making a final decision on whether to cut a stockbroker out of their stock investments.
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Tanisha Coffey, a MBA graduate and certified advertising copywriter, is an author and entrepreneur who provides strategic marketing consulting, professional copy-writing and author services through her firm Scribe, Etc. When she’s not working on client projects, Coffey writes self-help books for entrepreneurs, children’s stories and television and movie scripts.