How to Choose a Stock Broker – Discount Broker or Broking Firm?

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A large section of retail investors invest in the stock market with the hopes of making attractive returns on their investment. Stockbrokers help investors to undertake their stock market transactions and buy and sell stocks on behalf of their clients. Many brokers also provide advisory services, assist their customers to subscribe for IPOs, invest in financial instruments and debt funds. There are a large number of brokers and sub-brokers available in the marketplace offering a wide array of services to investors. But it does not mean every broker operating within the market space is reliable, efficient and is offering quality service at an equal magnitude. As a result of this, selecting the right broker is a vital decision which can have an immense impact on the investor’s returns.

Retail investors should investigate the following factors before finalizing and selecting a broker to handle their stock market transactions.

Background Check of the Broker

Before selecting and finalizing your stockbroker, it is essential to conduct a thorough background check of the broking firm or the individual broker by checking their past performance, registration with SEBI, online reviews, etc. This can help investors to safeguard themselves from frauds and potential cases of cheating, etc.

The requirement of Minimum Balance

Many brokers and broking firms have a requirement of maintaining a minimum balance, depositing a certain amount at the time of account opening. It is essential to compare the minimum balance requirement as it differs across different brokers and broking firms. It is a vital feature to check in case an investor does not transact on a frequent basis.

Customer Service

Customer service and availability of broker for providing advisory services, answering queries and offering suggestions promptly are of paramount importance to an amateur investor. Prompt customer service is essential for buying and selling stocks at the right time to ensure optimal returns on investments.

Cost of Commissions and Various other fees

Every broker and brokerage firm charges commissions, brokerages and a wide array of other charges for the services offered to their customers. Brokerages and commissions are charged on every transaction incurred while buying and selling stocks. These commissions, brokerages, fees and charges affect the returns gained by the investor. Hence, investors should compare the various commissions, brokerages, fees and charges levied by different broking firms and brokers before finalizing and selecting their broker.

Additional After-Sales Services

Additional add-on services offered by brokers and broking firms can always be beneficial for the investors, and they can compare these supplementary services offered across different brokers and broking firms before selecting and finalizing their brokers or brokerage firms. These extra services can help investors to achieve their financial goals and objectives.

Hidden fees and Changes

Many brokers advertise low commissions and brokerages but have a wide array of hidden fees and charges which the customers realize only post incurring transaction. These hidden fees and charges can often come as a rude shock for investors. Hence it is important to read terms and conditions before signing the agreement as these hidden fees and charges can put a dent upon the returns on investments of the investors.

Investment Options

Many brokers and broking firms have tie-ups with various mutual fund houses and fund houses which can allow an investor to buy, sell and invest in mutual funds, fixed-deposits, exchange-traded funds, etc. While a discount trader might not be able to offer these services, most full-service broking firms offer these services. Hence, an investor can select a broker or a broking firm according to their investment needs.

The requirement of Minimum Trades

Many brokers and broking firms have a minimum trade clause or a sub-clause within their service agreement, and investors can be levied a penalty for not executing a minimum amount of transactions or trades within a stipulated period. Investors who hold stocks for long terms and do not make frequent trades need to check for any minimum trade clauses and its corresponding penalties in their service agreements.

Research Reports

Many full-service brokering firms offer research services and reports on a regular basis to their customers while discount brokers do not. These research reports provide an outlook on the analysis of companies, industries and sectors. These research reports can offer guidance and vital data to investors for making their investment related decisions. Hence, investors who do not have knowledge regarding financial markets and do not have access to market-related information should opt for brokers and broking firms offering periodic research reports.

Local Offices

Several investors prefer to communicate with their stockbrokers in different ways. While some investors might prefer communicating with their brokers over the phone and email, other old-school investors might prefer communicating with their brokers by meeting them face to face. Now, for consumers who prefer personally meeting their brokers should select brokers or broking firms which have an office in their cities.

Further, another advantage of selecting a broker or a broking firm with an office in their city is resolutions of complaints and disputes. It can be easier to resolve disputes by visiting the local offices of your broking firm as compared to making complains to call centres and calling customer service departments.

The Verdict

Every investor has a different investment goal, and hence no single broker can suit the needs and requirements of every investor. Discount brokers are suitable for investors who do not make regular trades and have substantial knowledge of the stock and financial markets, while full-service broking firms are much suited towards investor who need advice, support and guidance of their brokers.