Full-Service Broker vs. Discount Broker: Which Is Right for You?
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Brokerage accounts are a gateway between the investor and the investment professional. When it's time to choose a full-service or discount broker, dozens of companies will compete for your business -- so it can be challenging for any investor to pick the right broker.
Below, we'll look at the full-service vs. discount broker toss-up more closely, presenting pros and cons you can use to make an informed choice.
There's a big distinction between full-service and discount brokers. You'll find differences in the level and types of services as well as costs when you consider a full-service vs. discount broker. The choice you make can have a big impact on your investing experience as well as how much you have to pay to invest.
A discount broker is a company that typically allows you to buy and sell stocks or other investments online. Think of this as a self-service option for investors. Despite their name, discount brokers tend to have many favorable traits such as low commissions and trading fees, and easy-to-use online trading platforms. Many discount brokers also have educational tools and resources available to help guide your investing, but there's typically not an advisor placing your orders.
Discount brokers are a great option for many, if not the majority of investors -- especially beginners looking for a brokerage.
In a fully managed investment account, the brokerage company has full discretion to trade on your behalf. This often appeals to busy people who don't have the time or inclination to manage their own investments.
The main downside to a full-service brokerage is the high cost. Commission rates aren't quite as high as they once were, but you can still expect to pay a lot more per trade with this kind of service than you will with a discount broker. Those who take advantage of management services often pay a percentage of their total assets in fees each year. Typical full-service offerings are priced from 1% to 2% or more. You could pay thousands of dollars in annual management expenses for a $100,000 brokerage account.
For some, that might seem well worth the cost not to have to worry about investments. But as you'll see below, investing with a discount broker isn't as hard as you might think.
$0 for stocks,¹ $0 for options contracts⁴
$0
This brokerage is a clear standout for its well-rated mobile app and 1% IRA match.⁸ It also has unique investment offerings like IPOs, options,⁴ and fractional shares.³
On SoFi Invest's Secure Website.
$0 for stocks, ETFs, and options
$0
Robinhood is a simple, low-cost brokerage with a few rare perks. It matches retirement deposits like an employer, the interface is gorgeous, and it's extremely affordable. No matter what or how you trade, Robinhood fees tend to match or beat the competition. It's worth a look.
On Robinhood's Secure Website.
Commission-free; other fees apply
$0
E*TRADE offers low fees and tons of account types. If you need it, chances are, E*TRADE has it. You can access advanced features through its popular Power E*TRADE platform. Open an E*TRADE account to trade fee-free mutual funds and do all your investing in one place.
On E*TRADE's Secure Website.
The full-service vs. discount broker decision depends on the level of service you want and how much you're willing to pay for it. In the end, either type of broker can help you reach your investing goals. Select the choice that will match up best with your preferences.
You might want to give a discount broker a try if these are true for you:
By contrast, a full-service broker is worth a look if these characteristics fit your situation:
For most investors, choosing between a full-service and a discount broker is straightforward. A discount broker is often the better choice. Given how expensive typical full-service brokers are, you have a big financial incentive to learn how to use a discount broker effectively. Not only will you save on costs, but you will hopefully end up smarter about managing your money.
Uncover the names of the select brokers that landed a spot on Motley Fool Money's shortlist for the best online stock brokers. Our top picks pack in valuable perks, including some that offer $0 commissions and big bonuses.
One main disadvantage to working with a discount broker is that there is probably no one with fiduciary responsibilities reviewing your transactions. Fiduciaries have a legal responsibility to act in your best financial interests. If you place trades yourself, you aren't likely to be warned about the risk level of your investment choices.
Fidelity Investments, Charles Schwab, and Robinhood are all examples of discount brokers.
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E*TRADE services are available just to U.S. residents.
Robinhood disclosure
All investments involve risk and loss of principal is possible.
Securities are offered through Robinhood Financial LLC, member FINRA/SIPC. Cryptocurrency services are offered through an account with Robinhood Crypto, LLC (NMLS ID 1702840). Robinhood Crypto is licensed to engage in virtual currency business activity by the New York State Department of Financial Services. Cryptocurrency held through Robinhood Crypto is not FDIC insured or SIPC protected. For more information see the Robinhood Crypto Risk Disclosure.
Trades of stocks, ETFs and options are commission-free at Robinhood Financial LLC. Other fees may apply. Please see Robinhood Financial’s Fee Schedule to learn more.
Fractional shares are illiquid outside of Robinhood and are not transferable. Not all securities available through Robinhood are eligible for fractional share orders. For a complete explanation of conditions, restrictions and limitations associated with fractional shares, see the Fractional Shares section of our Customer Agreement.
Robinhood Gold is an account offering premium services available for a $5 monthly fee. Not all investors will be eligible to trade on Margin. Margin investing involves the risk of greater investment losses. Additional interest charges may apply depending on the amount of margin used. Bigger Instant Deposits are only available if your Instant Deposits status is in good standing.
Investing is risky. Bonus offers subject to terms and conditions, visit robinhood.com/hoodweek for more information. Margin is not suitable for all investors. Robinhood Gold is offered through Robinhood Gold LLC and is a subscription offering services for a fee. Brokerage services offered through Robinhood Financial LLC (member SIPC), a registered broker dealer.
SoFi Disclosure:
INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE
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