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.

Why I trust my Broker

Signs That It’s Time for a New Broker
Excerpt:

Like it or not, if you’re putting your money in somebody else’s hands, you have the responsibility to read every line of your statements every month. People like Mr. Horn, who was a friend to many of his clients until he wasn’t, count on the fact that you won’t.

“I think the victims were picked because they weren’t paying attention to their accounts, because each and every trade was documented,” said Stephen Young, Wells Fargo’s outside counsel in this case, according to a court transcript of a sentencing hearing in January.

....

If you happen to run into an adviser prone to bragging, trading and disco parties at country clubs, check yourself to see whether you may have been just a bit too complacent.

Comment: I have a broker story about how my broker maximized her commissions at my expense. I dropped her. I'm not a broker but I do my own trades on Wells Trade. If one has a certain amount of assets Wells Trade provides 100 free trades a year. With 3 IRA's and a brokerage account I get 400 trades a year. I've never come close to using them. Do I trust myself? We'll I've made some mistakes (see SVU). My (really "our" as Kathee and decide together) strategy:

• Dividend stocks
• Mainly Large Cap  . An example of an exception would be  Rocky Mountain Chocolate Factory Inc.
• Diversification. Normally no more than 100 shares of any one stock (with some exceptions)
• P/E ratio of under 20
• An example of one that meets the above criteria would be Coca-Cola
• A company that I know something about. Examples (all where I have relatives working): Seagate (son), 3M (daughter), P&G (brother-in-law), Accenture (niece). USBank (friend from church)
• Companies with a broad customer base: General Mills, Kraft, etc. (also meets the "things people eat")
• Not tobacco. But I do have some other vice companies (people drink this stuff even when the economy goes South)
• Technology: Some have done well like IBM ... some not so like Intel and Microsoft
• Utilities like Centerpoint and Xcel (people have to heat and cool their homes)
• I don't need to take significant risk .. I'm a slow plodding investor. Recently we bought Nestl over a period of months