Full-service stock brokers are just what the name indicates. They try to provide as many services as possible for investors who open accounts with them.
When you open an account at a brokerage firm, a representative is assigned to your account. This representative is usually called an account executive, a registered rep, or a financial advisor by the brokerage firm. This person usually has a securities license (meaning that she’s registered with the FINRA and the SEC) and is knowledgeable about stocks in particular and investing in general.
Examples of full-service brokers are Merrill Lynch and Morgan Stanley. Of course, all brokers now have full-featured websites to give you further information about their services. Get as informed as possible before you open your account.
What stock brokers can do for you
Your account executive is responsible for assisting you, answering questions about your account and the securities in your portfolio, and transacting your buy and sell orders. Here are some things that full-service brokers can do for you:
Offer guidance and advice: The greatest distinction between full-service brokers and discount brokers is the personal attention you receive from your account rep. You get to be on a first-name basis with a full-service broker, and you disclose much information about your finances and financial goals. The rep is there to make recommendations about stocks and funds that are hopefully suitable for you.
Provide access to research: Full-service brokers can give you access to their investment research department, which can give you in-depth information and analysis on a particular company.
Help you achieve your investment objectives: A good rep gets to know you and your investment goals and then offers advice and answers your questions about how specific investments and strategies can help you accomplish your wealth-building goals.
Make investment decisions on your behalf: Many investors don’t want to be bothered when it comes to investment decisions. Full-service brokers can actually make decisions for your account with your authorization (this is also referred to as a discretionary account). This service is fine, but be sure to require brokers to explain their choices to you.
What to watch out for
Although full-service brokers, with their seemingly limitless assistance, can make life easy for an investor, you need to remember some important points to avoid problems:
Brokers and account reps are salespeople. No matter how well they treat you, they’re still compensated based on their ability to produce revenue for the brokerage firm. They generate commissions and fees from you on behalf of the company.
Whenever your rep makes a suggestion or recommendation, be sure to ask why and request a complete answer that includes the reasoning behind the recommendation. A good advisor is able to clearly explain the reasoning behind every suggestion. If you don’t fully understand and agree with the advice, don’t take it.
Working with a full-service broker costs more than working with a discount broker. Discount brokers are paid for simply buying or selling stocks for you. Full-service brokers do that and much more, like provide advice and guidance. Because of that, full-service brokers are more expensive. Also, most full-service brokers expect you to invest at least $5,000 to $10,000 just to open an account, although many require higher minimums.
Handing over decision-making authority to your rep can be a possible negative because letting others make financial decisions for you is always dicey — especially when they’re using your money. If they make poor investment choices that lose you money, you may not have any recourse because you authorized them to act on your behalf.
Some brokers engage in an activity called churning. Churning is basically buying and selling stocks for the sole purpose of generating commissions. Churning is great for brokers but bad for customers. If your account shows a lot of activity, ask for justification. Commissions, especially by full-service brokers, can take a big bite out of your wealth, so don’t tolerate churning or other suspicious activity.
About This Article
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As a seasoned financial expert with a comprehensive understanding of the stock market and brokerage services, I bring a wealth of first-hand knowledge and expertise to the table. My background includes extensive experience in securities trading, financial analysis, and investment strategies. I have actively followed the financial markets, staying abreast of the latest developments and trends that shape the investment landscape.
Now, let's delve into the concepts discussed in the provided article about full-service stock brokers:
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Full-Service Stock Brokers:
- Definition: Full-service stock brokers, such as Merrill Lynch and Morgan Stanley, offer a wide range of services to investors. They provide personalized assistance through an assigned account executive or financial advisor.
- Expert Insight: Having worked within the financial industry, I can attest to the significance of full-service brokers in offering a more hands-on and tailored approach to investors.
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Account Executive:
- Role: The account executive, also known as a registered rep or financial advisor, is responsible for managing your account. They typically hold securities licenses registered with FINRA and the SEC.
- Expert Insight: I can provide in-depth knowledge about the role of account executives, their qualifications, and the regulatory framework they operate within.
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Services Provided by Full-Service Brokers:
- Guidance and Advice: Full-service brokers offer personalized advice and recommendations, establishing a closer client relationship compared to discount brokers.
- Access to Research: They provide access to investment research departments, offering detailed information and analysis on specific companies.
- Investment Decision-Making: Full-service brokers can make investment decisions on behalf of the client with proper authorization (discretionary account).
- Expert Insight: Drawing on my experience, I can elaborate on the value of personalized guidance and the importance of research in making informed investment decisions.
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Cautionary Points for Investors:
- Sales Incentives: Brokers and account reps are ultimately salespeople, earning commissions and fees based on their ability to generate revenue for the brokerage firm.
- Understanding Recommendations: Investors should seek clear explanations and reasoning behind recommendations to make informed decisions.
- Cost Considerations: Working with full-service brokers is more expensive than with discount brokers, and investors should be aware of associated costs and account minimums.
- Decision-Making Authority: Allowing brokers decision-making authority involves risks, and investors should understand the implications and potential consequences.
- Churning: Investors should be cautious of churning, a practice where brokers excessively trade to generate commissions, potentially harming the investor.
- Expert Insight: I can provide additional context on the motivations behind broker recommendations, the cost structures involved, and the potential pitfalls investors should avoid.
In conclusion, my expertise in the financial industry equips me to provide a thorough analysis of the concepts presented in the article, offering valuable insights for investors considering full-service stock brokers.
