Full Or Self Service?

The amount of help you need investing determines whether you'll need lots of advice or just a firm to clear your trades

the market fell sharply, I asked him what to do and he told me to stay put, which was good advice. The rest of the time, he knows not to bug me.”

Most investors would agree with the “don’t-bug-me” message but probably wouldn’t mind some hand-holding as well. “There is so much information available today that it’s difficult for one person to deal with,” says Cotton. “Few people know all they need to know about asset allocation, insurance, estate planning, refinancing a mortgage, how to handle a lump-sum distribution, and so on. A full-service broker can be an advisor in all of those areas.”

Fields agrees that a full-service broker can help many investors. “You need to be very knowledgeable to work with a discounter who is probably just a voice on the other end of the telephone taking your order. Even-savvy investors may prefer working with a full-service broker they can trust” he says. “Orders can be lost in cyberspace for days. I usually can get right back to my clients with a confirmation of their trades.”

Should you lean toward signing with a broker, keep this in mind: brokers may seem a bit eager to push you into a number of products or even trades. “Sometimes brokers may have conflicts of interest with their clients, who would be better off not buying and selling so often,” says Matthew England, who now works in the Sacramento, California, branch of Charles Schwab.

When it comes to compensating brokers, sometimes problems do arise. Since the majority of brokers are paid on a commission basis, they reap a return every time they buy or sell company shares. At the larger firms on Wall Street, you’ll also find brokers eagerly pushing in-house mutual funds, which charge investors a fee. Again, brokers who sell clients on those same load funds pocket a commission from the sale.

No matter how good your relationship with your broker, or how much they have earned your trust, keep an eye on how they handle your account and how often they trade shares or, in industry lingo, “churn” your portfolio. As a precaution, ensure that your broker keeps your best interests foremost in mind. Here are a few steps to safeguard against churning.

Write down your financial goals and have your broker sign a copy. Once your broker signs such a document, they are more likely to abide by its terms.

Don’t sign discretionary trading agreements. Insist that all trades have your approval. (That way, your broker will have to call you and review every sale or purchase of stock, effectively maintaining your veto power over excessive moves.)

Keep your eye on your monthly brokerage statements. Ask hard questions if more than 25% of your account turns over each year.

Inquire about all fees. Most importantly, ask about “wrap” accounts, in which you pay an annual fee of about 3% of assets under management. That fee covers all costs, including commissions, so you won’t get churned.

The case for using a discount broker is fairly straightforward. Your

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