The quality of your broker and your brokerage firm are key to a successful experience in investing. Whether you choose a stockbroker, commodities broker, futures broker, bond broker, or an all-purpose brokerage firm, it’s important to know how to select the folks who are going to help you reach your goals. This broker guide for new investors explains some of the things you need to look for when selecting a brokerage firm. Find out what fees to avoid, what services you may need, and how to protect yourself. It’s part of our guide to investing in stocks. A brokerage account isn’t limited in the amount of money you can deposit unless it is an IRA or 401(k). Those are special retirement accounts subject to federal regulations. You’re also not limited in the number of brokerage accounts you can have—except for IRAs and 401(k)s. Another key factor in choosing an investment firm is how much cash you have on hand to invest. You might be priced out of the services of a firm if they require account minimums higher than you’re able to fund. But, other firms offer a minimum investment as low as $1. But the expense might be worth it if you require a little extra hand-holding as you get started with investing. The important part is to know what you’re paying for, so you can decide if it’s worth the cost. Some questions to ask yourself: Does the firm have the experience and reputation to justify its fees? Will they help you plan for retirement, advise you on tax strategies, or execute complicated trades? Can you trust their recommendations—do they have a history of good performance? After all, your future is in their hands. If you’ve done your research and can afford the expense, a full-service firm might offer the extra expertise you’re looking for. Another way to buy stock without a broker is through a dividend reinvestment plan (DRIP), where you purchase more shares using your dividend payouts. This method is also offered through regular brokerages. Investment advisor fees vary by firm and even by account, often working on a tiered system. This is where you’re charged a percentage that decreases the more you have invested with the firm. Custodial fees are the price the bank charges for guarding your securities. As the custodian, the firm also collects your dividends and issues you statements of account. And if you have paper stock certificates and house them with a firm, they’ll charge a fee for holding them on your behalf. By consolidating your activity, you may be able to take advantage of services only offered to clients with higher account balances. You will also get to see all your financial activity in one place in your monthly statement. And you might earn higher interest by using the attached money market account instead of using a regular checking account. This document will tell you the name of the investment you traded, the number of shares that changed hands and at what price, the dates traded, fees charged, and so on. If any of this data appears to be in error, you must contact your broker right away for a correction. Your brokerage has a system in place to track what shares you own. This is necessary because you didn’t buy actual paper stock certificates with your name on them. It’s an accepted practice. But, if you like, there are ways to make sure your shares have your name on them. Trading stocks can be intimidating if you don’t know what you’re doing or what the terms mean. Learn as much as you can about the types of stock trades you can make, how to pick stocks, and hidden fees. You can learn how to trade on margin or how to short stocks, as well as how to structure your trades to avoid huge tax hits.
