A brokerage account allows you to invest in the stock market and provides you with the freedom of choosing your own investment strategy. Depending on your level of comfort and knowledge in dealing with the stock market, you may choose to invest with a full-service brokerage house or a self-directed discount brokerage service. Before investing, it's important to understand the pros and cons of each type of brokerage account.
Investment Guidance
A major pro of full-service brokerage accounts is that you are in direct contact with your broker, who is able to offer you knowledge and advice when it comes to your investment strategy. With a discount brokerage firm, there is often little or no investment guidance available, and you must rely on your own knowledge to direct your investment strategy. A full-service brokerage also relieves you of the burden of constantly having to monitor your account or the market.
Investment Choices
Another pro of full-service brokerage firms is that they are often able to offer you a wider range of investment choices, including access to hedge funds or private equity. With a discount brokerage firm, these choices may not always be available, and the pool of tradeable assets may be limited. Other cons of discount brokerage accounts are that the speed with which trades are executed may vary, and the extent to which you can trade on margin may be limited.
Cost
A con of full-service brokerage accounts is that they typically carry higher fees than discount brokerage accounts. Your broker will often charge you a commission for executing your trades, and this ranges anywhere from five to one hundred dollars. Commission fees at discount brokerages are generally much lower, however, some firms may tack on additional fees for account maintenance.
Minimum Investments
A major con of full-service brokerage accounts is that they typically require a much higher minimum investment than a discount brokerage. With a self-directed brokerage account, you may be able to begin investing with just a few dollars a month, rather than an initial investment of hundreds or even thousands of dollars.
Additional Services
In addition to investment services, many full-service brokerages may also offer help with other services, such as retirement planning, insurance, banking or tax preparation. While you may enjoy the convenience of the availability of these services, they will likely require additional costs.
Accessibility
Both full-service and discount brokerages may provide online account access, as well as detailed paper statements analyzing your account activity.
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