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Full Service or Discount Broker?

September 11th, 2009
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05.11.2010 update
03.24.2014 minor updates

Full Service or Discount Broker?

Investor Education Series written by Net Advisor

Hundreds of people have asked me over the last two decades do I use a full service or discount broker?


1. It depends on what kind of money you might have.

If you have little or none, probably get a self-education first. That is what I did when I started out.

2. If you have say $25k-50k might want to explore a broker like a Charles Schwab. There you can get some help at a discount.

3. If you have $75-100k plus I would move to a full service firm, but check out the broker first. These are not set numbers.

Sure the commissions will be higher but you are paying not just for a transaction, you are paying for hopefully sound advice, research, and most importantly – someone to hold your hand when the market is in turmoil – someone who is trained not get emotional about stocks.

I can’t tell you how many people told me in the 1990’s, “I don’t need a full service broker, I can use a discount broker, do it myself, and save on commissions.”

Well, year 2000 (Y2K) was a wake-up call for those who thought that. A ton of people were wiped out. This is not to suggest that full service brokers had clients who had lost money too, this is where having a very knowledgeable broker is important.

I generally suggest seeking a person who has a lot of trading experience. These people have to pay attention to the market on a daily basis, and understand what is driving the market.

The traditional planners are “long term” viewers who pay little to no attention to the market and many people believe that in 20+ years you will magically arrive at your pot of gold.

I would then focus on someone with preferably 15+ years of market experience. You need someone who has been through a couple Bear Markets and a Bull Market which we have seen both in this time frame.

I saw a ton of new brokers with no experience putting people in .com stocks at the top of the market in 2000, only to be wiped out.

Sure, just because one has a seasoned advisor does not mean they can’t lose money, everyone does at some point.


When I worked at a full service firms, I found that I frequently if not consistent was able to get better executions than those trading at the same time at discount firms. I had a few clients who I allowed to have discount brokerage accounts, and we sought quotes and placed orders at the same time, and I beat them every time. No guarantees, but knowing how to place orders can save money.

I was able to point out many time that my commissions were far less that they paid for their stocks.

Spreads have narrowed substantially since, but still routing orders to specific markets vs routing to a specific market maker with a low broker commission means that the discount firm is being paid on order flow.


There are no guarantees that a full service, discount broker or yourself will outperform each other. One I can tell you is that the odds of succeeding in the market can improve by having a person who has substantial expertise and experience in the markets, far more than a novice investor.

There are some “do-it-your-selfers” who do really well. I have met some of them and managed part of their serious money.
These people are very few in numbers. Some people just have the “knack” to interpret markets, most do not.


If you are looking to trade, this is what I would do.
1. If you have little money go to Vegas. Black or Red and your all done, and no commissions, (kidding).

2. Full service firms especially their management and compliance departments don’t like client or brokers who are traders. There is more legal risk here, and complaints can be higher. This does not mean that trading is a bad thing. Their goal is to minimize legal risk.

I left my big Wall Street firm in spring 2000 because they would not let me buy puts, short sale after liquidating clients out of their .com, high tech, and many others stocks by March of 2000. It was and is a great firm, still in business today and not acquired by some lame sub-prime bailed out bank.

So if you want to day trade, and you don’t have a lot of money, lose it at a discount firm. A good advisor will want to manage your serious (retirement) money not your speculative money.

I would allow qualified clients to trade at times but only use a small portion of their account by percentage basis.

Discount Full Service?

I also would discount client trades to ensure profitability. If a client had a loss I would give the maximum discount. If a client initiated an idea, “unsolicited” then I would discount the trade for them since it was their idea.

I priced trades often based on client profitability as a result of my efforts, and based on the level of work the client required. High maintenance clients and low volume would have up to standard rates. Sometimes I would bend to help them out. Sometimes it seemed like charity work, and I did it to help them out, and got paid very little.

My goal was to help clients improve their overall situation. You want a broker who will work with you, and who is available for you. The more volume and business you bring them, the more likely you will get special treatment. This is just how it works.

Keep in mind that different brokers have different ideas. You need to find someone who is ideas and philosophies are in concurrent with yours.

There are those people who are bitter who lost money at a big wire-house (full service firm), but no one is perfect, and if one examines the broker and the client I’ll bet most of the time there was some big error that cased the problems.

In short.

I have advocated that people with serious assets and looking for retirement help, should use more full service firms because in my 20 years experience in the markets, I find that the majority of people have no clue what they are doing.

Sure, some people can manage money on their own and some do well, but these are the exceptions, rather than the rule.


Free – No Cost Resources:

Disclaimer: Please keep in mind that the following are 3rd party sources. I am not endorsing or recommending them, just providing further reading. They may have opinions that are different from my own. I have not evaluated every bit of information, nor do I intend to follow up on new posts on these sites. These sites will have advertising and often will try to sell you things. Try and sort out what you need from the media bias of selling products.

Mainstream information

New York Stock Exchange (from NYSE-EuroNext)

NASDAQ Stock Market (from NASDAQ)

Commercial based information

Learn the Basics of Investing (from Yahoo Finance)

7 Keys to Successful Investing (from Beginners Invest.about.com)

There are obviously many more resources; this is just a start page. I will be adding many more pages to this topic.


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