I closed out my last column by commenting that “There has never been more ways to manage your investable assets than today. This is both a benefit and a curse!”
Having many options and a lot of data does not equate with always making the right decision. It is important not to confuse information with wisdom. Having the time, the intellect, and the discipline to manage your investments is a combination of skills that not everyone possesses.
At one time, the investment world had clearly defined lines. You had full service investment firms such as Merrill Lynch or Morgan Stanley. You had Banks such as JP Morgan and US Trust that offered Private Banking and Trust Services for wealthy families. Then you had “discount” brokers that offered low cost stock and bond trades along with “no-load” mutual funds for individual investors. Finally, you could invest directly with a mutual fund company such as Fidelity. Offer the past thirty years, the lines have blurred.
For this column, I would like to focus on brokerage firms that traditionally have catered to the individual investor who wants to manage their own investments. I am also going to avoid firms that focus on the needs of traders who have different needs than a long-term investor. I am not going to rank the firms. For that you can turn to publications such as Forbes or Barron’s who do an excellent job of reviewing the services of the different firms. I want to help you to ask the right questions so that your needs are properly matched with the offerings of the firm that you select.
So, who are these firms? In no order, they are as follows:
- Charles Schwab
- TD Ameritrade
- Merrill Edge
Let’s start with a basic question. Do you want to have access to a physical office? These firms offer on-line trading and phone assistance, but do they have a convenient office that you can visit if you have an issue.
Charles Schwab has offices in Arcadia, Pasadena, and downtown LA. E*Trade has an office in downtown LA. Fidelity has an office in Pasadena. TD Ameritrade has offices in Pasadena and Encino. Merrill Edge has advisers located in many of the Bank of America branches throughout LA County. If you want in-person service, then selecting a firm that has an office convenient to your office or home should factor in your decision.
Account fees are an important consideration, especially if you are going to have multiple accounts. Be sure to understand what the fee structure is. There can be account minimum balances that need to be maintained or an account maintenance fee is charged. It is also important to ask about the account closure fee. If you decide to change brokerage firms, you can be hit with these charges which can be substantial. The fee will be buried in the fine print of your account agreement that you will most likely not read.
Transaction charges are the next area that you need to educate yourself. If you watch any television or use the internet, you are always seeing ads for low cost trades and even free trades from each of these firms. It is like a race to the bottom. My take on all of this is that overly active trading is detrimental to most investors and it has nothing to do with the $4.95 that you pay to execute a 100 share buy order of Apple. It’s about the concept of “time in” the market opposed to “timing” the market. If you are going to be very active with trading your holdings, then a $4.95 commission versus a $9.95 charge will be meaningful. Otherwise, look for reasonable pricing and decide on which firm to select based on other factors.
One of the most important factors is the ease of use of the on-line platform. Ease of use and customization are key. Each of these firms have mobile apps, so keeping track of your holdings is simple and straightforward. You should spend time with each platform before you make your final decision on which firm to transfer your assets to.
These firms will offer a wide range of investments, but they won’t offer everything available in the marketplace today. You should ask for a list of ETFs, mutual funds, and their individual bond offerings to get a full understanding of what is available to you. As for ETFs and mutual funds, make sure you understand what, if any, fees will be charged to buy or sell a fund. Also, what is the cost to buy or sell an individual corporate or municipal bond.
These firms offer different planning and forecasting tools. Common tools include a Required Minimum Distribution calculator, Retirement Planning software, and College Savings analysis to name a few. You will also find investment personality programs that are designed to understand your tolerance for risk. Most investors have one or two key concerns. Whatever key issues you have, make sure that the firm that you select provides the tools that will help you address those issues.
Finally, these firms are going to offer you advice if you meet a certain threshold of investments with them. As I mentioned at the beginning of this column, the lines are blurred. Each of these firms want you to work with their Advisors either in their local offices or over the phone. This is the upsell. So, if you decide after a few months or years that managing your own investments is not what you want to spend your time doing, then each of these firms will be very happy to charge you a bit more and provide the advice and invest the funds for you. This may be a good solution for you, but please remember that when it comes to advice, there are many more options that are available to you other than these firms. We can discuss those options in our next column.