Lease Finance and Investment Banking
Price One of the primary factors influencing an investors‘ decision to open an account with a brokerage firm has to do with the price to buy or sell stocks, or commission costs. Discount brokers have the edge in this category. Commission costs range from a $4 minimum cost with Sharebuilder to $12.95 with Charles Schwab. It‘s not uncommon for full service brokers to have a $50 minimum charge. If you are starting with a small account, less than $10,000, then it makes sense to consider a discount broker. Otherwise, a full service firm will eat up your capital in commission costs. In addition to those costs, pay close attention to other fees such as account maintenance, wire transfer fees, check writing privileges and inactivity fees, costs charged to your account if you have not bought or sold a stock in several months. If you decide to go with a discount broker you will have the lower commissions by trading online. It‘s not uncommon for a firm to have a $10 commission for trading online and a $29 charge to speak to a broker.
Research Full service firms have the advantage in the research category. They employ analysts to conduct primary research on several stocks and provide written reports to assist investors in making buy or sell decisions. One of the reasons full service firms charge more in commissions is to help pay the fat salaries they give to their research staff. Discount brokers don‘t typically have analysts because they are trying to keep overhead costs to a minimum.
Market Share Discount brokers have proliferated since the advent of online trading, with more and more customers opting to manage their own finances and trade online. As a result, full-service brokers have lost market share to discounters and had to consolidate through mergers and acquisitions or by becoming subsidiaries of large commercial banks.
Target Market Because full-service brokers can no longer be all things to all people, they've been increasingly concentrating on the affluent market--clients with substantial assets and specialized needs-although many wealthy investors prefer to do business with discounters.
Services Another area full service brokers have an edge is in product offerings. Many of these firms offer insurance products, mortgages, credit cards and checking accounts in addition to investment accounts. Discount brokers are no frills shops, so don‘t expect to receive any of these additional products if you choose to go that route.
Compensation Full-services brokers (who prefer to call themselves financial advisers, wealth managers or account executives) are compensated based on assets under management or through commissions on the products and services they sell. Discount brokers (registered representatives) are salaried employees. Full-services brokers justify higher fees and costs by offering a full range of services under one roof. With a discount broker, you only pay for what you use.
Jagannath University
Department of Finance
Md. Mazharul Islam Jony
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