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Answer Questions about Choosing a Broker or an Investment Advisor

How do you choose an investment advisor or stockbroker? The key is to decide what kind of assistance you need and to get quality help from the best individuals and institutions. Whichever institution or individual you choose, remember that this individual or institution must be registered and licensed to sell the assets you are interested in buying or selling. While the term advisor or broker is often used interchangeably, the difference is largely based on what type of assets each advisor has recommended historically.

You should base your decision about a broker or investment advisor on what you are buying or selling, how much help you want with the investment process, and how much you are willing to spend.

What you are buying: If you are buying stocks and bonds, you must use either a broker or an investment advisor who works with a broker. If you are comfortable making investment decisions yourself and you just need help executing your stock and bond trades, you might decide to use a discount-service broker or an online-discount broker. A discount-service broker will charge lower commissions on trading but will not provide investment advice. If you work with a discount-service broker, you will determine what to buy and sell, and you will give the orders to buy and sell. A discount-service broker executes your orders at a reduced price.

If you are not comfortable making your own investment decisions and would like someone to help you decide what to buy and sell, you may want to think about using a full-service broker or an investment advisor. A full-service brokerage provides a variety of services to its clients, including research and advice, retirement planning, tax tips, and much more. The full-service broker helps you decide what to buy and sell, executes trades for you, and keeps you informed about changes in the market. These services come at a price, however; commissions for full-service brokers are much higher than commissions for discount-service brokers.

If you invest only in mutual funds and make all of your asset allocation decisions yourself, you may not need a broker or investment advisor at all. You can buy many of your funds directly from the mutual fund family (the company that owns the mutual fund) or from a mutual fund supermarket that sells mutual funds from many different mutual fund families. Most of these purchases can be made directly without sales charges or loads (selling fees) or 12b1 fees (fees for selling the funds to investors). Be aware that the amount of your investment must meet a minimum investment requirement: many mutual fund families charge a fee if your account falls below the minimum required investment.

Help in the investment process: If you are comfortable making your own investment decisions, you may still appreciate some outside advice regarding your investments, or you may want to have someone to review your investment plans. If this is the case, you could talk with an investment advisor. A full-service broker or investment advisor can provide helpful advice about retirement planning, taxes, and other aspects of finance. You can negotiate for an up-front fee to pay for the specific amount of time you talk with the advisor or broker, or you can agree to make specific trades through the advisor to compensate for the advice.

How much you are willing to pay: If you are very concerned about costs, you can purchase mutual funds directly from a mutual fund family, generally without fees. If you are buying or selling stocks or bonds, you can work with a discount-service broker or an online-discount broker so that you will pay the lowest costs possible.


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