In case you were laboring under the assumption that every person who calls themselves an investment broker will guard your money as if it were there very own, bring you milk and cookies at bedtime, and never suggest stock purchases because of a sweetheart deal between their monolithic corporate office and a publicly traded company – umm, we’re not sure how to say this but the next sound that you hear will be that of your bubble bursting. We’re sorry but it needs to be done.
The first thing to keep in mind when shopping for an investment broker is that they are in the business to make money. There are two basic ways for a broker to accomplish this. The first is to manage your trades diligently and shrewdly and only take an agreed upon percentage of the profits as a commission. The second is to hit you up with numerous transaction fees and administrative charges and try to get you to churn your account with pointless trades.
You’ll need to decide whether to go with a discount broker or full service broker. As a young investor, there’s a good chance you won’t have the means necessary to attract the interest of a full service broker. His extra customer service comes at a price of higher fees and, normally, a higher minimum deposit to open an account. Discount online brokers like Scottrade or Etrade only require $500 or $1,000 to get started and the fee structure is usually simple to understand, which brings us to three points we’d like to make about brokers and why you should do your homework to make sure you’re hiring a legitimate one.
1. Some brokers are crooks. You might as well face this reality up front. Rarely a year goes by that we don’t learn about a serious bit of chicanery going on that costs investors a bundle and the dishonest broker jail time.
2. Some brokers are incompetent. Don’t let a million dollar smile, flashy three-piece suit, and firm handshake fool you. Some people are dolts and the broker career is no exception.
3. Some brokers are nickel and dimers. If the fee structure is too complicated to understand or takes up more than one page of printed material, say thanks but no thanks. What’s the point of even making a profit if you give most of it back to an investment broker who makes his living inventing new fees for your account?
At the very least, check to make sure that the investment broker you are considering for your first account is a member in good standing with the National Association of Securities Dealers or the Securities Investor Protection Corporation.
The Young Wealth Team
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