How to Find the Best Broker for You

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While LearnVest’s philosophy is to buy mutual funds and ETFs that help you diversify and spread your risk, if you are set on investing in individual securities, here are some tips from our partner InvestingAnswers

Each week, one of our investing experts answers a reader’s question in our InvestingAnswers’ Q&A column. It’s all part of our mission to help consumers build and protect their wealth through education. If you’d like us to answer one of your questions, please email us at editors@investinganswers.com and include “Investing Q&A” in the subject line. (Note: We will not respond to requests for stock picks.)

Q: How do you pick the right broker? I know I should invest, but I just really don’t trust myself to do it right. There’s just so much to think about, so I think I’d like to go with a broker. But I’m not sure how to pick one of those either. Help!!
– Todd, Akron, Ohio

A. Hi, Todd. By the nature of your question, it’s clear that you are just starting out as an investor. So you should be spending time learning as much as you can about investing before deciding alone which stocks and funds are best for you. In fact, you may never have the time and energy to do all the homework necessary to stay informed about investing moves.

That’s why a full-service broker is surely a good option for you. Note these are different brokers than the “online brokers” such as E*Trade or TD Ameritrade, which allow you to trade stocks for rock-bottom fees, but offer minimal investing advice or counsel.

You’ve probably heard of all of the leading full-service brokers, as they likely have a branch office right in your town. The six biggest full-service brokers (ordered by the number of brokers they employ)

  • Morgan Stanley
  • Merrill Lynch
  • Wells Fargo Advisors
  • Edward Jones
  • UBS
  • Raymond James

There are many other good options, though some firms don’t have the same armada of brokers operating out of retail offices and instead rely on telephone and web-based customer support. For example, Fidelity Investments and Charles Schwab handle as many accounts as the firms noted above, but they may not have an office near you.

78461223Another distinction: The full-service brokers noted above, such as Morgan Stanley and Merrill Lynch, offer a suite of financial planning services — which can include estate planning and long-term wealth management strategies that may be better tailored to your needs.

If you think that sounds like what a financial planner can do, you’re right. Today’s full-service brokeris expected to know much more than just investments. They should be reasonably knowledgeable about taxes, insurance, family trusts and other topics, and will advise you on how to structure your portfolio in the context of your long-term financial goals.

Every year, ratings firm J.D. Power & Associates polls several thousand investors to see which firms deserve high marks and which ones are to be avoided. You can read about the 2012 rankings here.

  • OldProf

    As a professor who spent 30 years in the world of investing, I would answer this question quite differently.  The first thing (ok, after all of the basics of finance) that I teach is to DIVERSIFY.  If you want to start investing, then you need to become comfortable with the concept of Risk and Return (if you want more return, you need to take greater risk.  Risk-free promises are a quick way to lose everything!).  So while you may want to talk to a broker, I’d recommend that you instead talk to a financial planner to determine 1] if you really should be taking fliers with the market (what are the items that these funds might better be used for?), 2] what makes sense given your overall ‘portfolio’ (including your existing retirement savings, any mutual funds and etf’s that you hold, any hard assets like a home and car, AND your existing debts), and 3] your time horizon.  A broker is going to charge a commission for her time – she needs to feed her family, too.  But there is an inherent conflict of interest – no sale of product, no compensation.  Stick with a planner who can guide you in this process, then use a low cost service that minimizes all fees like Vanguard.