Who is a broker? Well, a broker is an individual or firm which charges a fee or commission for implementing a buy and sell order or orders submitted by an investor. Before diving into this, check out the basics of buying and selling shares. What is the best practice in choosing a Broker? Brokers are traditionally divided into three groups which are:
- full-service brokers; A full–service broker is a licensed financial broker-dealer firm which offers extensive services to its clients, including research and advice, retirement planning, tax tips, and much more.
- discount brokers; A discount broker is a stockbroker that charges its clients significantly lower fees compared to traditional brokerage firms but without providing financial advice.
- deep-discount brokers: An agent that performs sales and exchanges between securities buyers and sellers at even lower commission rates than those offered by a regular discount broker. They do not offer investment advice.
These three groups can be distinguished by the level of service provided, as well as the resulting commissions charged. However, as the brokerage industry becomes more competitive, the differences among the broker types seem to be blurring. Another important change is the rapid growth of online brokers, also known as e-brokers or cyber brokers. Online investing has fundamentally changed the discount and deep-discount brokerage industry by slashing costs dramatically. The choice is therefore easy to make depending on the level of discount you prefer as an investor and the kind of investment advice you would wish to have.
There are several important things to keep in mind when dealing with a broker. Note the following:
- Any advice you receive is not guaranteed.
- Your broker works as your agent and has a legal duty to act in your best interest. On the other hand, brokerage firms are in the business of generating brokerage commissions.
- Your account agreement will probably specify that any disputes will be settled by arbitration and that the arbitration is final and binding.