Stock brokers and broker commissions

Here's one of the first rules (in my mind) about being an active investor. If you don't know what you are doing, you need a wealth advisor. That wealth advisor has to make a living. And they make a living by either assessing a fee (say 1 or 2%) on one's investments (sometimes paid annually ... sometimes quarterly) or by charging a commission on stock trades.

We worked with a very competent wealth advisor for about two years. She helped us a lot and earned her pay, but at some point I figured that I knew almost as much as she and we decided to go it alone.
There are some advantage to having a broker / wealth advisor. From what I can tell they are at least these:
  • There are investor class shares that one's broker may be able to trade at low or no commission. They often have a lower expense ratio and are not available to the average investor.
  • There are some securities that are more difficult for the individual investor to acquire - perhaps a municipal bond.
  • Because the broker deals with investments day in and out and over the years, they have a body of knowledge and expertise that it is difficult for the individual investor to master. 
  • A broker or wealth advisor will provide independent advice and may throttle the exuberant investing of an individual. For an illustration of this, when I bought FITB for $ 1 a share back in the recent recession, my broker called it "a crap shoot". It was. I bought 1,000 shares and I did ok.

Back to commissions. I recently viewed a trading transaction of a family member. The person bought 80 some shares of a blue chip at $ 70 some per share. The commission was about $ 150 with a $ 5 transaction fee on top of that. Those shares cost $ 72 per share. That share will have to go up almost 3% just to break even. 

Enter the discount brokers. We use Wells Trade from Wells Fargo. We have a special relationship with Wells two ways: 1.) We have a PMA account with a threshold that provides free trading and 2.) We are team members and have certain other fees waived. 

The point of this blog post is that if one is an active investor, one has to have a way to trade with very low fees. My son-in-law uses Charles Schwab

My brother-in-law uses Fidelity. My mother uses Edward Jones as a full service broker. For someone wanting to trade at the lowest trade rates here are some options: 

Here are some other options compared in a Motley Fool article.  Source of 1st (black and white) image.

1 comment:

  1. Interesting for ETF investors: Can Cross Selling Save the Brokerage Industry?

    It was interesting to see Charles Schwab (NYSE:SCHW) launch a no-fee ETF OneSource platform last week. My initial thought was that this was a somewhat desperate move to keep assets under management and a way to offset the decrease in daily trading volume. But upon further review, I see that Schwab is getting distribution fees from partnering with the firms, which cover 105 ETFs. However, notably absent are Vanguard and BlackRock, which include some of the largest ETFs such as the Vectors and the iShare family.

    This move by Schwab takes a page out of its own playbook; the company pioneered its OneSource no-fee mutual fund family in the 1980s, and it spurred incredible growth. I don’t expect the same trajectory now since I think this will maintain rather than gather accounts. But on the whole, it is a positive.


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