Last night I attended a benefit with a group of fabulous women. In a conversation before the show started, one of my companions mentioned that she was thinking about opening a brokerage account. She asked the very common question: Should she use a broker or do it herself?
I tend to lean toward the “do-it-yourself” route, but not everyone is the same. It can be reassuring to have a professional help you make important investment decisions and guide you on the steps to manage money. That said, remember that you’re going to pay for this service. If your goal is to get ahead, a full-service broker or advisor is going to slow that process with their fees.
Here’s what you need to ask if you go the full-service route:
- What are the fees associated with your service? Make sure all fees are in writing and that you understand how and when you’ll be paying.
- What is your investment philosophy? You want to make sure that your broker is on the same page you are. Generally (though not always) someone around your age will probably identify with your goals more than someone much older or younger.
- How experienced are you? Sitting in a chair for a long time doesn’t make someone an expert. That said, I don’t necessarily want to be the “test run” for the new broker.
The Financial Industry Regulatory Authority (FINRA) provides a website to make sure your prospective broker has never been in trouble. You’ll find it here.
If you decide to fly solo, you’ll also need a few tips:
- Are you a self-starter? Starting an online brokerage account is more than about avoiding fees. I’ve met plenty of people who never trade, never invest and don’t make prudent investment decisions while they’re savings a bunch of money in fees. Remember: saving money in fees won’t reach your goal. You’re going to need to plan and keep yourself on that plan to succeed.
- Compare services. Some online brokers offer convenient methods to add and subtract funds. Others offer incredibly low trading costs. Some work with many mutual funds. Others only let you choose from a few. Call the phone support people and ask them how to open a Roth IRA (whether you need one or not). Judge the service you receive. Was it helpful? Were you transferred several times?
We’ll do a full blog piece on this in the future, but hopefully this will help anyone out there considering this very question to get started!