No matter your confidence or experience level, managing your investments can often be stressful. So, it may be helpful to partner with a broker to help you successfully navigate your investments. And once you start looking for a broker to help you with your investment strategy, you’ll realize there’s a lot to consider.
You have a lot of choices available, often right at your fingertips. It pays – literally – to do your homework about what each option offers and where your most significant financial benefits lie. We’ll walk you through the steps to figure out what kind of broker is best for you. We’ll also give you our recommendations for some of the best brokers in the industry for all sorts of different investment needs.
What is a Broker?
A broker is simply a financial professional who is authorized to execute trades on behalf of clients, and they typically receive commissions for their services. Being able to execute trades requires access to a major stock exchange, such as NASDAQ or the New York Stock Exchange. Because trading brokers (or the firms they represent) are members of these exchanges, they can participate in trading actions. Brokers typically are associated with brokerage firms and may handle transactions for clients ranging from individual investors to large institutional or retail customers.
Background of Stockbrokers
Generally, stockbrokers have extensively studied finance and/or business administration and often have a formal educational background in finance or a related field. In most cases, they have also passed a series of official industry exams. A good broker needs a solid understanding of accounting methods, financial regulations and laws, financial planning and forecasting, and economics and currency. To provide top-level customer service, a broker also should have strong interpersonal skills and be able to develop and maintain strong relationships. A good broker must also show integrity and be trustworthy. You want a broker you can trust to always act with your best interests in mind.
In the United States, brokers must hold a minimum of the FINRA series seven and either 63 or 66 licenses, and they must be sponsored by a brokerage firm. Make sure to check for those credentials before you sign on with a broker. You can also look for global credentials like Certified Financial Planner and Chartered Financial Analyst.
Types of Brokers
Traditionally, the term “stockbroker” has been used to describe the financial professionals who deal in stock and facilitate stock trading, but today the terminology is a little different. Today, we divide brokers into two main types: full-service brokers and discount brokers.
Full-service brokers function more like the traditional stockbrokers of old. They are people with financial backgrounds and expertise who can counsel you on everything from making a trade to investing in mutual funds to developing a retirement fund strategy. Full-service brokers offer a high degree of personalized customer service, which comes with a hefty price tag.
Personalized attention from a human being is dramatically more costly to provide than an automated mobile platform, after all. A full-service broker may charge as much as $75 for placing a stock trade, but that number can be upwards of $500 if you’re purchasing a large amount of stock. Also, many full-service brokers require a minimum deposit. For example, some full-service brokers may refuse to work with anyone with a minimum deposit of less than $1M.
In the End
A full-service broker ends up doing most of the research and legwork on behalf of the client. That is why those services come with a more substantial fee or commission. However, there’s a catch. Full-service brokers are often recommended for newer or less experienced investors. However, their high price tags often prevent less experienced investors from using their services.
Discount brokers, on the other hand, represent almost every company you’d find in the online trading world. A discount broker likely won’t call you up with investment advice, meet you for coffee to discuss your retirement strategy, or pass along hot stock tips. Instead, a discount broker transfers most of the responsibility for selecting and executing good trades to the individual investor. So a self-directed investor who is well-prepared, knowledgeable, and confident about her investment choices can save an enormous amount of money on trading fees and commissions by using a discount broker.
The Main Focus
A discount broker will focus on the fundamental task of providing an investor with the platform and tools you need to trade stock, exchange-traded funds, futures, and other investments. That’s all from the comfort of your own home – or anywhere else you choose. Since discount brokerage firms pay lower overhead costs and cut out most of the bells and whistles traditionally associated with stock trading, they are able to pass along those savings to investors. This ability means low or no minimum deposit amounts, low- or no-fee trading, and more money in your pocket.
Many of the most popular online discount brokers will charge $5 or less for a single trade, which is a fraction of what a full-service broker would charge. One can argue that the rise of the discount broker has effectively democratized the stock market, making it accessible to everyone. Discount brokerage firms are now able to offer 90 percent of the services and functionality of a full-service brokerage, but at a cost that is 90 percent lower than what a full-service brokerage would charge. That’s a powerful indicator of how much the investment community has changed in recent years.
In an ironic twist, the two types of brokerages are beginning to converge. Some traditionally full-service brokerages have moved into the world of online trading. At the same time, formerly online-only platforms have begun to offer services that allow investors to consult with financial advisors. For example, Merrill Edge is the online-only counterpart to the traditional brokerage Merrill Lynch.
How Do I Decide Which Broker Is For Me?
Picking a broker is a lot like choosing a particular stock: you need to understand your overall investment style and where you’d like to end up. You have a ton of options – more than any investing generation before you – and while that may feel overwhelming, it also can be freeing. After all, if you engage with one broker who turns out not to meet expectations, you have many other choices for moving on. And that kind of competition can help incentivize brokers to offer you the highest level of customer service.
Today, more trading brokers are available to investors than ever before, primarily because of the proliferation of online discount brokers, which now make up the majority of your choices. It’s extremely easy to do a simple Internet search and find hundreds of brokerage firms at your fingertips. But before you make your choice, there are some key considerations you should examine, which we’ve outlined below.
Top Seven Considerations When Choosing a Broker
Of course, no one broker can perfectly meet the needs of every single investor at all times. The best brokers should walk the fine line between offering plenty of robust services, tools, and perks, while also providing a price point that works well for your budget and keeps the most money in your pocket. As you’re considering various brokers, the following are some of the critical characteristics you should evaluate carefully.
Your Investing Needs
Perhaps most importantly, ask yourself whether you need a full-service broker or an online, discount broker. Full-service brokers, at one time, were the norm. Because it was so expensive to get access to the stock market, it only made sense for extremely high-net-worth individuals to consider investing. They worked with full-service brokers and paid hundreds of dollars per transaction. But with the advent of the Internet and online brokerage firms, the stock market is much more accessible to investors at all levels – and without the expensive trading fees of old.
Online discount brokers provide access to faster, less expensive, and more automated investment options for everyone. So unless you have highly specialized needs, an online discount broker is likely your best option. But it’s ultimately a personal choice determined primarily by how comfortable you feel making your own investment choices. For some investors, it’s worth the extra expense to have someone to bounce ideas off of and to help them explore their various options; for others, it seems like an unnecessary frill. The savings inherent in working with a discount broker is more important than the other benefits.
Also, think long and hard about your investment style. If you trade primarily in stocks and ETFs, for example, you might need a different kind of broker than someone who deals solely in mutual funds. Look for the broker that offers the resources and support you need for the particular way you want to invest your money.
Commissions and Fees
One of the biggest stumbling blocks to building wealth is paying high trading fees and commissions for investment activities. And when it comes to commissions and fees, discount brokerages are the clear winner over full-service brokerages. Amongst discount brokers, you can still find a range of fees. However, most of the best discount brokers will charge less than $7 per trade, and many do not charge monthly or annual fees for having an account. Plus, many online brokers offer thousands of ETFs and mutual funds that you can trade without transaction fees, loads, or commissions.
It’s About Value
As with anything, you’ll need to examine the commission and fee structure of all brokers you’re considering. Then, you’ll have to compare them to the benefits you get, and then determine what gives you the best value based on your individual preferences, comfort level, and investment needs. Because at the end of the day, it’s all about value. The lowest price may also deliver the lowest value, so don’t choose a broker based on a price alone. Some experts believe that low-price trading can encourage people to trade too much, while ultimately erodes investors’ returns. Make sure the broker can deliver on all aspects of your relationship, such as research tools, platform, customer support, etc.
The good news is that a decades-old brokerage price war has driven down commissions and fees. That is to the point that investors can find plenty of options that maximize the money they’re able to keep in their pockets. In addition to traditional commissions and fees, though, some brokers may charge additional fees, like a withdrawal fee to access your money. Some brokers will also deny a withdrawal if your account drops below a precise balance. Make sure you fully understand the fee structure of your selected broker and its corresponding rules and restrictions before you sign on. If rates seem unusually structured, or too good to be true, read the fine print carefully. Make sure it’s legitimate and that it meets your investment needs.
Practices concerning account minimums can vary widely. Unless you’re planning to make a substantial investment deposit with your broker, it’s wise to choose a broker that doesn’t require an account minimum. Minimums can start around $100,000 and rise to upwards of $1M in assets, so that makes sense for only the most established and affluent of investors. Many of the more affordable discount brokers accept account minimums as low as $5,000.
If you’re a young or inexperienced stock trader who would like to start small, opting for a broker without an account minimum is likely your best choice.
While a lot of discount brokerage firms offer many of the same options for investing in individual stocks and ETFs, your broker needs to offer a wide selection of fund investments. These can help you expand and diversify your investment portfolio. Research suggests that investors should own at least 30 different stocks to have a truly diversified portfolio. If you use mutual funds and ETFs, you’ll also want to select a broker that offers a great deal of choice for those investment vehicles as well.
The best brokers will offer thousands of options for stocks, bonds, ETFs, and mutual funds. Plus, options for commission-free ETFs and load-waived (or no-load) mutual funds that charge no transaction fees.
Customer Service and Support
Are you a self-directed investor who wants to manage your portfolio in the middle of the night? If so, does the broker you’re considering offer customer service access 24 hours a day, seven days a week, to help you when you want it? It’s not uncommon for online brokerage firms to have customer service representatives available around the clock, so make sure to look out for this if it’s important to you. With the right level of customer support, you can get advice about a particular trade. You can even get help interpreting your mutual funds or retirement accounts statements – whenever it’s convenient for your schedule.
Such services can include access to advisory services. Many discount brokerage firms now offer some level of financial counsel, from computer-generated advice to professional financial advisors that you can access for an extra cost. If you feel you’ll need these kinds of services, find out whether your chosen broker makes these resources available. After all, at some point, you might want to talk with someone about estate planning, your retirement accounts, or even creating a retirement plan in the first place.
Research, Infrastructure, and Education
The best brokerage firms will arm you with substantial amounts of research and data to help you make informed and sound choices about how to invest your money. After all, one of the key reasons to open an account with a broker is to access expert third-party opinion when you need it. Many brokers will offer access to accurate, well-researched data and information that provide everything you need to sort and evaluate various stocks. This information is based on everything from annual fees to price-to-earnings ratios. A good number of online brokers now offer access to research from Moody’s, S&P, Morningstar, and other trusted and well-respected third-party research providers.
The key is to make sure your chosen broker is going well above and beyond what you can find on your own with a simple Internet search. Most discount brokers now offer access to some type of bond market analysis or commentary. But the ones that go above and beyond also provide more in-depth research on individual stocks, ETFs, and mutual funds.
If you think you’ll be making your investment choices online, try to find the most elegant and user-friendly interface that you can. It can be stressful to make split-second stock trading decisions within a confusing or cluttered online environment. Find one with an experience that feels intuitive and navigation that’s clean, simple, and easy to follow, even for beginners. If you know you’ll want the flexibility to trade on your phone, also check the existence and quality of a mobile trading app associated with your chosen broker.
A broker’s commitment to investor education is typically found among the research and trading tools the broker makes available. Some of the best brokers in the business make investor education a priority, with entire portals full of resources dedicated to broadening the investor’s knowledge of everything, from the basics of cryptocurrency to complex investment strategy. TD Ameritrade and Fidelity stand out among discount brokers for offering robust trading tools that include virtual trading. This feature allows you to see how hypothetical trades affect portfolio allocation or to practice trading with virtual money before going live with the real thing.
Access to Your Money
One of the most enormous benefits of working with a discount broker is that it will often offer banking services as well. Not only can you manage your investments through your brokerage services, but you can also take advantage of ATM cards (and even checks) that allow you to instantly access your money when it’s needed.
Our Picks for Top Brokers
If you’re choosing a broker for the first time, you have so many options to choose from when it comes to either discount or full-service brokers that it’s easy to get overwhelmed. So to make it a little less overwhelming, we’ve outlined some of our favorites below. No one broker is perfect for everyone. Pair what you learn about each of these brokers with the evaluation criteria we’ve provided to choose the one that makes the most sense for you.
And remember – once you choose a broker you’d like to try, your decision isn’t set in stone. You can always switch to a different brokerage partner after you learn more about what you truly need.
Founded in 2017 by Ally Financial, Ally Invest is a relatively new player on the market. Ally represents a solid option that requires no minimum deposit to open an account and charges reasonable commission fees. If you’re looking for a highly intuitive, easy-to-use platform and low fees, this option may be for you. As an added incentive, Ally offers more than 100 commission-free ETFs. Since its inception, Ally has emerged as one of the leaders in brokerage accounts that are best for self-directed investors who want to trade stocks, ETFs, mutual funds, and more. And the more active of a trader you are through Ally, the more discounts you can enjoy.
Ally also offers a digital advisory service called Advisors Managed Portfolio, which requires a $2,500 investment to access and charges a 0.30 percent advisory fee. Its selection of services isn’t as robust as some other advisory services, but the option is available.
One of the original online discount brokers, E*Trade has made a name for itself by catering to especially active traders who want access to multiple platforms, while also providing top-quality services to more long-term investors who are looking for as many as thousands of mutual funds and ETFs to be traded. E*Trade is especially attractive because of its broad array of options when it comes to investment vehicles and its wide selection of roughly 250 commission-free ETFs. It’s also typically viewed as a smart broker choice for bond investors, providing access to tens of thousands of both municipal and corporate bonds. That’s well ahead of many of its competitors.
In terms of research and advisory services, E*Trade’s Option House platform helps investors make responsible and well-researched decisions by providing critical market data like trendlines, volume, and more. And its ease of use and commitment to investor education keep it firmly in the top rankings for brokers well-suited for beginning investors.
With its ideal combination of outstanding research, an excellent, user-friendly mobile app, and low commissions, Fidelity is always a sound option. Fidelity requires no account minimums and offers a zero-expense-ratio index and mutual funds, so it’s a winner all around. In 2017, Fidelity made an aggressive move within the discount broker market by introducing four index funds that charge zero management fees. It also offers investors more than 500 commission-free ETFs. In addition, Fidelity is always a good option for mutual fund traders, with more than 4,000 no-fee funds within its network.
Fidelity is a trusted name in the investment community, known for its combination of low-cost trades and robust research tools and information. Additionally, Fidelity has invested heavily in developing high-tech solutions for customers in recent years that help customers with everything from estate planning and retirement planning to the best strategy to trade stocks.
And with a small $10 investment deposit, you can access Fidelity Go, Fidelity’s digital investment adviser.
Charles Schwab has been around for a long time as a full-service broker, but has, in recent years aggressively made an entrance into the discount brokerage market, slashing its fees and lowering base commissions to an affordable and competitive level. Schwab is a well-trusted brand name when it comes to investments and is a sound choice for beginning investors. Its thousands of no-transaction-fee funds offer beginners a great deal of freedom and choice in order to get started. All totaled, Schwab offers more than 10,000 mutual fund options and more than 500 commission-free ETFs.
Some experts consider Schwab the overall best online broker, mainly because of its wide selection of investment options, high-tech platform and tools, and its unparalleled reputation for customer service. Both experts and beginners can find what they need through Schwab simply because of its breadth and versatility.
Schwab also offers a robo-adviser called Intelligent Portfolios, which allows investors to access advisory services and use low-cost ETFs to tailor dozens of portfolios. It’s widely considered one of the best robo-adviser services in the business, achieving overwhelmingly positive results for investors over time. You’ll need a $5,000 minimum investment to access it, which is higher than some other brokers, but the tool charges no asset-management fee. And for investors with more than $25,000 in investments, Schwab offers access to a hybrid program that combines algorithmic advice with personal consultation with a financial professional.
TD Ameritrade has long been a standout among online brokerages, mostly because of its outstanding products and investing tools, its comprehensive research, and its lack of minimum account requirements. It’s great for investors at any level and is intuitive for beginners. It also offers more than 100 commission-free ETFs. Its selection of no-fee funds also makes it a solid choice for those who lean toward trading mutual funds. Experts often rank TD Ameritrade as one of the best online brokers for beginners.
With TD Ameritrade, you can trade from your phone – or even a smartwatch – and its online platform “thinkorswim” is unparalleled in terms of robust offerings and pleasant user experience. It’s considered practically a professional-grade trading tool. And if you have $25,000 or more in investments, you can access TD Ameritrade’s hybrid professional services program, which combines algorithm-based recommendations with expert consultation.
Overall, TD Ameritrade is an excellent choice because it offers something for everyone; both experienced, and novice traders can find what they need to be successful.
An outgrowth of the traditional Merrill Lynch brokerage, Merrill Edge has emerged as a popular choice for customers who are looking for robust research and background investment resources. (The offerings from Merrill Edge in this department are robust). Also, for investors who are also Bank of America customers, Merrill Edge offers an added layer of convenience, since the two accounts can easily be linked. The brokerage also offers free trades to Bank of America customers who maintain a minimum balance. Investors who manage at least $100,000 in account assets on average can earn up to 100 free trades every month. Overall, Merrill Edge is a sound option for investors with high balances who are relatively active traders.
Merrill Edge particularly stands out for its remarkable online trading platform, elegant and intuitive for end-users. It takes some of the most essential facets of investing and turns them into a narrative format. This feature guides the user through a story-based approach to assembling and managing a portfolio. This brokerage also offers a simple and user-friendly mobile app that is attractive to many investors.
Hands down, Robinhood is the leader for online brokers when it comes to price, offering free ETF and stock trades through its fintech app. There are no fees associated with options trading or cryptocurrency, either. But if your investment strategy hinges on mutual funds, you’ll be disappointed, because they are not available through Robinhood.
The Robinhood app is exceptionally user-friendly and makes for a seamless trading experience – and it’s been recognized with several industry awards to that effect. Robinhood started as a mobile-only experience and only recently added a Web version. It’s a bare-bones approach to trading, so don’t expect a lot of bells and whistles. If you feel confident in your trading abilities and don’t need additional support features, you can save a lot of money with Robinhood’s unlimited free trades.
And with Robinhood Gold, the broker’s premium account, you can unlock other benefits, like more massive instant deposits and access to Level II market data from NASDAQ.
Whether you’re just starting as an investor or are an experienced trader looking to make a change, there’s a broker out there for you. No matter your investing style or experience level, you can find a broker that fits your niche and can adequately meet your investment needs. And whether you want to research sophisticated strategies, test the investing waters or trade complex options contracts, this guide helps you carefully consider what you need in a broker.
Over time, you’re more likely to make more money if you choose a reliable broker. No matter where you are on your investment journey, consider some of the options we’ve outlined above. Now you can rest easy knowing you’ve chosen a trusted partner that can help you meet your investment goals.
Who’s your favorite broker? Tell us about it in the comments below.