Credit portal




How brokerage firms work

how brokerage firms work


Martin January 11, 2012 at 9:16 pm

One of the more important features to consider when looking for a brokerage to house your investments is the quality of customer service provided. What if you need to perform trades and make transactions but then you find that you need to ask a few questions before making a move? If a broker were really reputable, you’d expect them to provide you with prompt and satisfactory answers but a firm that cuts corners by employing untrained staff or that lacks insufficient methods to contact them can be pretty frustrating to deal with. And of course, it can be worse! The wrong choice can cost you money.

Silicon Valley Blogger January 12, 2012 at 4:58 pm

I agree — a company is only as good as its employees. If you aren’t experiencing good service, it’s likely that you won’t last long as a customer. To gain loyal customers, a company needs to have top service and not just a solid or popular offering.

How To Choose A Great Broker

How do you go about finding a quality broker that is rated highly? Here are a few tips that can help you out:

  • Look through professional reviews. Financial publications such as Kiplinger's, Barron's, and SmartMoney regularly offer reviews of brick-and-mortar and online brokerages and rate them on several aspects. You may also be interested in reviews provided by other online resources (such as our site) in order to get a comprehensive idea about a broker's reputation.
  • Get some references. Word of mouth is one of the best ways to find out how a broker measures up against its competitors. You can also locate both current and former customers of the broker and solicit an opinion.
  • Look for reports or complaints with consumer organizations. Check out the Better Business Bureau or other industry watchdog groups to see if a firm has a negative report. Most reports filed with such organizations are complaints. But understand that complaints in themselves aren’t necessarily a bad thing as long as the broker addresses and attempts to resolve any issues in an amicable matter. A broker with a commitment to its customers and with a high regard for customer service will work on resolving any issues and disputes against them.
  • Determine a firm's accessibility. Many people don’t like calling companies when it comes to addressing a concern. Does the broker allow you to email a question? If so, what is the expected timeframe for a response? Does the broker have a live chat function? If so, is it staffed? Having alternative avenues to contact the firm is a good indicator of a solid customer service program.

The brokerage industry is competitive enough such that their level of service can be a deciding factor for you when you shop around for a company to work with. So, the next time you are in the market for a place to stash your money, take a good long look at the way your banks, mutual fund firms and brokerages treat their customers before you make your decision.

Full Service Stock Brokers vs Discount Brokers

When it comes to brokers, you will notice that the bulk of them will fall into one of two categories: full service and discount. But what makes a broker a full service broker? Is it merely an issue of pricing? Or is there more to it? The answer may surprise you. Here is a quick peek at some of the main

differences between a full service broker and a discount broker.

  1. Price. Trade commissions are probably the most glaring difference between a full service broker and a discount broker. Why? Because the cost of trading with a full service broker can exceed 10 times that of a discount broker and often does. So, the question remains as to why anyone would choose a full service broker over a discount broker if they can both accomplish the same feat, which is to execute trade orders. The answer lies in what you get for your money. Full service brokers offer unparalleled customer service, sound investment advice, and help for planning for your future.
  2. Personal Service. With a full service broker, you will get one on one attention which commonly occurs face to face, though some will assist you over the phone. In any event, you will have access to a live, experienced person. Your investment broker’s role is to be the eyes and ears of your portfolio by conducting research on your behalf, preparing reports, and providing you with solid investment guidance. Online discount brokers are not typically known for this level of service. They offer an environment that is more conducive to the do-it-yourself approach. While many will provide you with great educational opportunities, innovative trading, analysis tools and a wealth of up to the minute information, the guidance you receive isn’t personalized to you or your portfolio. You may spend hours digging through all of the available information to find the one piece you need.
  3. Wider Range of Services. Full service brokers oftentimes have access to certain private equity and hedge funds that may not be available to discount brokers. These exclusive investments may offer a unique opportunity for you to make the most of your investment dollars without greatly increasing your risk threshold.
  4. Peace of Mind. Full service brokers are well trained and know how to best navigate turbulent markets and avoid costly mistakes. This is especially handy if you are a novice investor since you lack the experience to be able to read markets accurately and understand trends. A reputable firm with a long standing reputation for producing good returns year over year adds a layer of security to your portfolio, especially when dealing with highly volatile markets.

Lastly, understand that it all really boils down to cost versus service. Full service brokers offer all of these great services at a cost that may be significantly higher than an online discount broker. This cost can significantly cut into any return you may realize and may limit the amount of trading you can do, especially if you have a small initial investment to work with. Discount brokers are extremely attractive to new investors because of their low cost and state of the art trading tools, but will limit the support available to customers. The savings you get for dealing with a cheap stock broker are passed on to you.

You may think that novice investors with low trading volumes should stick with a full service broker as the cost associated with using one will usually be much lower than making a mistake on your own and losing not only any chance of getting a return, but your initial investment capital as well. But the reality is that high volume investors and traders are rewarded with even better perks at a discount brokerage, including free trades and even lower commissions. The key here is to determine what you'll be comfortable with. For most people, a low cost investment broker typically suffices.

Category: Forex

Similar articles: