So you’ve maxed out your retirement plan and kids’ college plans, have a healthy emergency fund in savings, and are ready to do a little investing on your own. But when you searched for an online broker, you were overwhelmed with the number of companies offering what appeared to be the same service. Like when choosing banks, think about a few specific variables to find the right broker for you.
What are your needs?
Some of you are just starting out and only need a simple trading platform and quality educational resources to help you keep learning. Others have been investing for years and might be using options or commodities as ways to provide more diversification. An all-in-one broker is a good place to start, but only if they excel in the specific areas you need. Questions you may want to consider include:
- Will I use this account to set up a Roth IRA that I will invest in once a year (more passive) or will I be trading daily?
- Do I need an online broker with advisors available in case I have questions or get in over my head?
- Do I have a relationship with a bank that already provides a brokerage service?
- How much money do I have to invest?
Reviews
Once you have an idea of the type of broker you want, do an online search and read reviews from money management websites and current customers’ comments. If nothing else, these will help you narrow down the offerings, and may help firm up in your mind what you really need from a broker. Just know that many blogs and financial sites get kickbacks from steering people to brokers’ sites.
Commissions
In the fall of 2019, most online brokerages dropped their commissions for stock trades to $0. This was a response to apps like Robinhood that had always offered $0 trades. Even though most online brokerages advertise commission-free stock trades, read the fine print. I was surprised recently when I wanted to buy an OTC (over-the-counter) stock. Even though they advertise $0 trades, E-trade’s commission was $6.95 while my brokerage was $0.
You may be investing in mutual funds or ETFs instead of stocks. If you have already decided on the funds in which you’re investing, make sure the brokerage you’re interested in offers them at no cost. Similarly, if you’re trading options contracts or have a margin account, make sure those fees (or interest rates for the margin account) are low.
Fees and Minimums
Some brokerages charge annual fees just for you to have an account. Others may charge a fee if your account becomes inactive. And the paper statement fee seems to be one that won’t die.
If you can invest the minimum required by the brokerage, you may not have to pay a fee. Definitely do not pay for paper statements – it’s easy to organize your financial life in one folder on your computer.
Note also that some investments may have required minimums. A mutual fund may require $1,000 or more to open an account, or $10,000 to get the best fee structure. Similarly, some may lock you in for 60-90 days – if you sell before that time is up you’re assessed a fee.
Education
As a new investor, having information presented at a level you can understand without talking down to you is important. Additionally, having the information in the format you want is key. Are you a visual learner who can’t stand reading online reports? Look for a broker with more video offerings.
How much analysis for each individual stock does the broker offer? Not only should the broker provide financial information and analyst opinion, but they should also include information about insider trading, sector events, and up-to-date news pertaining to the stock. In other words, you should be able to quickly ascertain the quality of the stock based on the analysis provided by the online broker.
Ease of use
When you’re setting up the account, how long does it take? Make sure they provide a timely way to transfer funds into and out of the account, preferably at no cost. Some provide checking accounts that allow for immediate transfers. If not, how long does it take for funds to show up in your account?
Try to see as much of the trading platform as possible before you send money to open the account. Does it make sense to you and feel easy to use or is it cumbersome? See if their checking or savings options seamlessly integrate into your total account. For instance, is there a snapshot of your overall holdings?
Help when you need it
If the site goes down and you need to sell a spiraling stock, you will need to talk to someone. When you’re comparing offerings, make sure you find one that won’t charge broker-assisted fees if the site goes down.
Similarly, does the online brokerage have a full-service option? You may think you want to spend hours researching stocks and then find that it bores you to tears. Already having someone you can meet with to take over managing your account could make that decision much easier than having to transfer your account to another broker.
Freebies
Finally, if you are torn between two brokers, search online for freebies from one or both. When I was signing up for one of my brokerages, they were running a friend’s special where you could enter a code and get $100 added to your account. A monetary incentive can go a long way towards paying any fees you could incur setting up a new account.