Is What You See What You Get?
"Hey look at that commercial. I like that guy, and he has a serious face on. The actor must know what he is doing, so that broker he is representing must be great!" I know that's not you, but it brings up a good point. What do you look for in a good discount broker? Before we get all enamored with commission prices and free toasters, let's think about what could be important to us when looking for a good broker. It's vital that we know because we can't afford to become discouraged from investing if we can't stand our broker or hate our broker's platform.
Our path to building to wealth should be free of obstacles. Investing is too important to let small things like the wrong broker get in the way of success. Here are 10 things to consider when choosing a discount broker.
1 - Access to my money and other banking services: Do I have to wire out money, or can I use a check and/or debit card, like at my bank? Do they have money market sweeps for my capital when I am not actively invested, and what rate are they paying? Is automatic bill payment possible? Can I also do direct deposit?
2 - Tax Issues: Since I do my own taxes, I find out if I can import my year's trades into TurboTax or Tax Cut. One of my brokers has this option. As such, it literally takes me less than 30 seconds to export all my year's trades to TurboTax.
Keep in mind: While keeping the sales price is required by the IRS for all brokerage firms, your brokerage firm may or may not keep your original cost of your investment, as you will need both the sales basis and cost basis to figure out whether you owe any tax. Depending on your strategy, it may be wise to contact the discount broker, tax professional and/or the tax software programs for more information and clarification.
3 - Commissions: Unless you intend to trade more than 5 times a month, don't make the price of commissions an issue in choosing your broker. A $2 difference or saving $10 at the end of the month may not be worth the trouble if you don't like your broker's customer service or trading platform. You should focus your efforts on building a solid trading plan, where the real money will be made or lost.
4 - Fees and minimums: You should be plainly aware of the fees brokers charge for services like wire transfer, checks, etc. Some even charge money for using their trading platform (and I don't know why). As with commissions, most fees you encounter won't have any relevant impact in choosing a broker, but you should be aware of them as surprise charges can often irritate customers.
5 - Customer Service: This can be the make or break decision in choosing a broker. All of us at one point will experience a customer service issue, and should thoroughly challenge our broker of choice on customer service. Ask them: are they rated on customer service and by whom and how? Don't just believe them when they say "We're good." Test them. Don't hesitate to call when the first issue comes up. During a big emergency is a bad time to do that. Also ask them: what are you currently doing to improve customer service.
Secondly, it's important to know how to contact customer service if there happens to be a power outage or your trading platform crashes. I encourage you to write down all the methods for contacting your brokerage firm, including touch tone trading, instant messaging, email or the ability to physically drive to a local branch. Be aware that many brokers impose restrictions on methods by which they are willing to receive orders from you.
6 - Research, Investment Products and Tools: You will also receive plenty of information from your new broker on types of investment products and research available. You may also want to probe what tools they have that their competitor doesn't. Consider whether those tools are essential to you in light of your overall personal financial plan. While some bells and whistles look inviting, they can become a distraction to making money. Design a plan on how you intend to invest first, and then determine what tools you will need to help you out.
7 - Web-based vs. Platform: Access to your broker comes in mostly two forms - web based, which is access to your broker through your browser (Internet Explorer, AOL, Firefox, Safari, Opera) or a trading platform, which is direct access software downloaded to your computer, that you can use to access the markets, just like the professionals do. If you travel a lot, you may also consider asking about a third access point: the PDA, like a Palm, iPhone or Blackberry for quotes and trades.
* No matter which access point you use, probably the most important consideration in choosing a broker is being comfortable with the platform. Since most times you won't be able to experience this until the account is open and you have downloaded the software, I highly recommend you find a local office and try a demo there. Sometimes, discount brokers who are not in your local area have "demos" that either you can try online or they can send to you on a CD-ROM, as well.
* Learning the trading platform may seem overwhelming, but take your time. Having the patience to learn the platform will pay off in spades in the long run. Fortunately for us, most discount brokers have special classes or online tutorials in a webinar format to show you how to learn their platform.
8 - Education: Most firms offer in-house classes, webinars, special training sessions and guest speakers to help you along your way. Ask your discount broker how they help their customers learn and grow.
9 - Free Stuff: Do not become distracted by limited offers, free trades or cash back. Focus on the long term value of the brokerage firm, the platform and issues that are important to you.
10 - Asset protection: US financial regulatory organizations require all participating member firms to carry insurance on your assets. But you should still ask "Is this firm insured by the SIPC, and for how much?" What other measures are being taken to protect your assets? What happens if someone steals your checks or debit card? Learn how you are protected and in what ways.
If you need a place to start, here is a list of some brokers (in no particular order) to look at:
Fidelity Schwab Scottrade Tdameritrade Tradestation Interactivebrokers Thinkorswim
As you become a better investor, your investing needs will change. I have actually gone through quite a few brokers since I started investing. Building the right relationship is important. It can encourage you to invest right. It can also bring about improvements to your own trading plan. In the end, the right broker should make building your wealth easy!
At Cheaplee.com, we stick it to the man one penny at a time by showing you how to invest and grow your wealth, share tips to save money and help build a successful retirement plan in order for you to retire early. Learn to secure your future at http://www.cheaplee.com
