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What exactly is the difference between a "discount" and a "full service" brokerage firm? I've been with (what's now) Smith Barney for 20 years but when speaking to a friend yesterday and mentioning that I was charged $100 commission to sell $12,000 worth of stock this summer (plus the $5 transaction fee which always applies and which I don't care about), she asked me why I don't use a discount brokerage instead.
All I ever do is phone in a buy or sell order very infrequently (maybe once or twice a year, max), and all my holdings with them are in stocks (no funds). So now I'm wondering whether a so-called discount brokerage wouldn't do the same thing for less? What kind of sales fee schedule do people who use discount brokerages pay?
I should mention that this is the first time I was charged a commission on a sale, but the other sales were for smaller proceeds and perhaps that is why I was only charged the $5 transaction fee. I tend to buy and hold for a long time (10 years or more) but will probably have to sell about $125K worth next year if our financial situation doesn't improve. (We are both retired) So if I can save some money on sales commission fees, I'm interested in looking into that.
Full service is for when you need someone to hold your hand and help you decide what to buy. If you're making your decisions and just phoning in an order, you're paying for service you're not using. Just key in your trade online at a place like Scottrade, that's basically all your broker is doing when you phone in your order. All you ever usually pay is $7 per trade (for simple buys and sells, stocks over $1). For pink sheets (stocks under $1), options, large volume orders, and other special trades there are often surcharges.
On the other hand, the fees you paid are trivial in the grand scheme of things, based on the infrequency of your trades. If you have a good relationship going maybe it's not worth moving. Find out specifically what those fees were for and how they might apply in the future. You have to ask questions about charges you don't understand in order to make an informed decision.
Thanks so much for the answer; I had a feeling it might be that. As you mentioned, I've never had a problem or issue with SmithBarney before... but again, I have never been faced with the probability of having to put through a lot of sales. The 125K figure is the least it would be; it might end up being as much as 200K worth having to be sold in 2009 (ouch).
I will give them a call tomorrow and ask about their selling commission schedule in light of the $100 that I was charged for the $12K sale (and didn't expect, or even realize until I got the Confirmation in the mail a few days later and saw it). Because if it's going to cost me $2000 or $3000 or more in commissions to liquidate 200K worth of stock... that would hurt, since right now every dollar counts.
I have two other questions, though. Are ALL discount brokerage firms online firms? Because I'll be honest, I'm one of those who refuse to do certain kinds of transactions (such as banking... basically ANYTHING that is connected with my Social Security number) online. And if that's the only way to deal with a discount broker, then I doubt that my 'security comfort-level' will allow that.
The other question is: If I do decide to switch brokerage houses, what's the normal procedure? Can it be done electronically/seamlessly by giving the New Brokerage Firm written authorization to instruct SmithBarney to transfer all my account holdings to them (as is often done when transferring an IRA from one bank to another)? Or do I have to first withdraw everything from SmithBarney by requesting certificates, and then deposit those certificates into a new account at another brokerage firm?
I can answer the last part of your post. If you go to a discount brokerage, they will have you sign a transfer form. Once you sign it, they put the instructions in their system, and everything happens electronically. This usually takes about five days if you're transferring securities "in kind". There are many transfer agents that don't even issue paper certificates anymore for stocks. There's probably a transfer out fee for your Smith Barney accounts; you might want to ask what that fee will be. Smith Barney might also have proprietary mutual funds that would have to be fully liquidated, and then the cash from the sale can be transferred electronically with the rest of your holdings. Hope this helps!
Fidelity Investments, for example, for your asset level, would charge $45 + 4.5 cents per share over 500 shares for a rep-assisted trade. It is considered a discount broker. You certainly do not ever HAVE to do anything online though a broker like Schwab, Fidelity, or Scottrade. You can also go into a branch to execute a trade. On the other hand there are some low cost brokers that are primarily online.
I suggest giving each a call just to chat about the commissions and phone-based trading service. You can then make a decision about whether to stay or transfer.
If you choose to transfer, you'll need to fill out Transfer of Assets paperwork with the RECEIVING firm. You do not have to obtain certs. If everything held is stocks and cash, the transfer can probably be done fairly quickly (5-8 business days) using an electronic system called ACAT.
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Just to clarify what's been said above (which was all accurate), You likely won't have to sell anything, you just transfer to another 'holding agent' (Broker). It is usually seamless, with no hassle, but takes a few days, and you may need to fax / mail / deliver some authorization forms with signatures. Usually these can be mailed in plenty of time.
As mentioned there may be some proprietary investments in your current 'full service' firm that would have to be sold, or left 'as-is'. (you can just keep that portion with SB).
Choosing a broker varies on your requirements. I keep a couple different ones, and have them linked with ACAT. If one has great margin rates and I want to write a check for a property purchase, I transfer to the best rate and use my account as collateral rather than a bank. Unfortunately, margin rates are not good at the moment, and have not been competitive with HELOC for about a year. (that should have been a tell-tale sign of things to come)
I have not had a full service broker since 1984, when I realized the broker was making more on the trading fees than I was on gains !
I like to call and actually talk with someone about account questions, and 1st and foremost they need to provide accurate and timely information on my account. I also like having a local branch that I can drive to and deliver and pick up checks, tho this would no longer be necessary with ACAT and if I had HS internet available....
I have two other questions, though. Are ALL discount brokerage firms online firms? Because I'll be honest, I'm one of those who refuse to do certain kinds of transactions (such as banking... basically ANYTHING that is connected with my Social Security number) online. And if that's the only way to deal with a discount broker, then I doubt that my 'security comfort-level' will allow that.
Scottrade has branch locations all over the place. You can trade over the phone or in person. But your lowest fees are going to be online because it is automated and has lower labor costs.
I understand perceptions can be difficult to change but your internet connection is a lot more secure than your phone line. Your VISA number is more likely to be stolen by the kid you hand your card to at a restaurant than an online e-commerce site.
Unfortunately, full-service brokers, being full-service brokers, will often charge a hefty fee for transferring assets out or closing your account. It will still likely be worth it to do that though.
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Originally Posted by DiverTodd62
...your internet connection is a lot more secure than your phone line. Your VISA number is more likely to be stolen by the kid you hand your card to at a restaurant than an online e-commerce site.
Thanks for all of your replies, they've helped a great deal! I did some poking around online and found several sites comparing discount brokerages. There are two TDAmeritrade offices here on Long Island, so I'll give one of them a call tomorrow, as well as inquire of my SmithBarney office about transfer/closing and other fees.
One thing I did notice on the comparison sites was that even the discount ones do charge for what they call "broker-assisted" trades. I'm a little confused about that. Does that mean that if I buy or sell via the website, the cost is (for instance) $9.99 but if I prefer to call their office and say "Sell", that is a "broker-assisted" trade and in that case the commission would be $49.99?
TDAmeritrade does say that I could go to a branch and open the account there, instead of inputting the application online, so that (for me) is a plus. I know myself well enough to be sure that there's absolutely NO security assurance in the world that would be sufficient to enable me to type in either all or part of my Social Security number on a website. It's just one of those things that my gut simply rebels against ever doing!
Silly question for those who do online transactions: Once your account is set up, do you need to input any part of your Social Security number as part of your login process? Or is it simply done via a username and password/passcode?
One thing I did notice on the comparison sites was that even the discount ones do charge for what they call "broker-assisted" trades. I'm a little confused about that. Does that mean that if I buy or sell via the website, the cost is (for instance) $9.99 but if I prefer to call their office and say "Sell", that is a "broker-assisted" trade and in that case the commission would be $49.99?
Exactly. Fidelity's Silver schedule, for instance, would charge you $10.95 + 1.5 cents per share over 1000 online, and $45 + 4.5 cents per share over 500 over the phone with a live trader. You pay a premium, even if you're just calling to place a market order. Now, you might be able to take advantage of an offer -- 10 free trades for opening an account with $100K in assets, for instance.
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Originally Posted by totallyfrazzled
TDAmeritrade does say that I could go to a branch and open the account there, instead of inputting the application online, so that (for me) is a plus.
You should be able to open an account at a Schwab, Fidelity, or Scottrade branch as well.
Quote:
Originally Posted by totallyfrazzled
I know myself well enough to be sure that there's absolutely NO security assurance in the world that would be sufficient to enable me to type in either all or part of my Social Security number on a website. It's just one of those things that my gut simply rebels against ever doing!
I guess that's a personal choice. I've never had much problem. I place about 40 trades per month and move money among five different accounts at three different firms all the time.
Quote:
Originally Posted by totallyfrazzled
Silly question for those who do online transactions: Once your account is set up, do you need to input any part of your Social Security number as part of your login process? Or is it simply done via a username and password/passcode?
I use a login that is an alias, a "customer ID." You should have that option if you want.
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