Investment Analysis

8 Questions to Ask Before Choosing a Brokerage

Once you’ve decided you’re ready to invest your money, it can be difficult to decide where to invest your money with so many brokerages in the market. Below, we list eight questions you should answer to help you pick the brokerage that fits your needs.

Once you’ve decided you’re ready to invest your money, it can be difficult to decide where to invest your money with so many brokerages in the market. Below, we list eight questions you should answer to help you pick the brokerage that fits your needs.

Do You Need a Discount Broker, Full Service Broker or Robo-Advisor?

When you are new to investing, it can be overwhelming to dive head-first into a discount brokerage and pick your investments yourself. If you find yourself wanting some advice on your investments, then it may make sense to consider a full service broker or a robo-advisor. Full service brokers can also be ideal for individuals who have complicated investment needs or a complex financial situation. Robo-advisors are a happy middle ground for the investor who does not want to pay the fees associated with a full service broker, but still wants a more hands-off approach to investing. If you prefer a do-it-yourself approach, then a discount/online broker is likely the best and cheapest solution.

What Are the Fees and Charges?

Before opening an account with a brokerage firm, you should read their schedule of fees and charges to understand how and when you will be charged. Fees and other costs can quickly erode your returns and could even eat into your principal funds. Some brokerages may come with hidden fees that are a hard to discern—in this case, it’s advisable to contact customer service to answer any questions you have about the fees. If you know how much you’ll be investing and how frequently you will be buying or selling, then it’s helpful to estimate your yearly fees across brokerages to make the comparison easier.

What Are the Account Minimums?

Some brokerages require very high account minimums to open an account (especially full service brokers), whereas others have no account minimums. Some may also require their customers to maintain a minimum balance in the account to avoid additional fees. If you are new to investing or have little to invest, this may be a barrier to opening a brokerage account. Don’t despair though—there are many brokers that have no opening or balance minimum requirements.

What Type of Account Do You Want to Open and What Do You Want to Invest in?

Most brokerages offer a variety of accounts, including retirement accounts, taxable accounts and custodial accounts. Depending on the type of account you want to open, there may be additional fees or charges associated. Individual retirement accounts (IRAs), for example, typically come with account closing or transfer fees that are higher than for a regular brokerage account. Most brokerages allow investors to invest in standard securities, such as stocks, bonds and funds, but not all brokerages allow investors to invest in more complex or riskier investments, such as penny stocks, foreign currencies or options. If you want to invest in these types of securities, then you should be looking for a brokerage that offers these investments at a reasonable cost.

How Often Will You Be Trading?

If plan on actively trading, executing multiple trades per week or day, then you will want to consider a brokerage that offers low commissions on transactions. For buy-and-hold investors (investors that trade infrequently), trading fees and commissions are less of a concern.

Does the Brokerage Offer Any Commission Free Products or Sign-Up Bonuses?

Two popular items that some brokerages offer are commission-free exchange traded funds (ETFs) and no-transaction-fee mutual funds. If you are planning to mainly invest in mutual funds or ETFs in your portfolio, then saving money on commissions and fees is important for protecting any returns on your investments. Some brokerages even run their own mutual funds and ETFs, which they allow their customers to invest in without transaction fees. Additionally, online brokerages regularly offer incentives to new account openers. This may include cash bonuses and free trades or other perks. These sign-up bonuses can help you minimize your overall transaction costs.

Does the Brokerage Provide Investment Research or Other Perks?

Investment research, such as analysis of specific investments or trends in the market, is an important resource for many investors, and the quality and price, if it’s not free, of this research varies greatly across brokerages. Some brokerages also offer other perks, such as online checking, debit card services or portfolio diversification advice. However, many of these incentives and perks offered have strict requirements that may include an initial deposit amount or restrictions on withdrawals. Before signing up for these perks, read the fine print to ensure you are eligible for the offer and that you understand what it entails.

What Is the Customer Experience?

Some brokerages have easier to use websites and better customer service than other brokerages. Some customers may not care if the website is harder to use or customer service is only available at certain hours as long as they can execute trades with minimal fees. For investors that may not be tech savvy, a good customer experience can make a big difference in the investing experience. Even if you are tech savvy, it’s good to know that you can call, email or message a customer service representative in case you have any problems with your account. Many discount/online brokers only have an online presence. While this does help to reduce costs, it could also affect the level of overall customer service. Some brokers also charge hefty fees for broker assistance. If you think you may need broker assistance for your trades, consider opting for a broker with a brick-and-mortar presence.

Rebecca Wessell

Rebecca is a Product Manager at ValuePenguin, focusing on small business lending and personal loans. She was a financial services and data management consultant at Ernst & Young.