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Types of Brokerage Firms

There are a number of different types of brokers: full-service brokers, discount-service brokers, deep-discount brokers, and online-discount brokers.

Full-service brokers: Full-service brokers will give you a complete range of tools, research, and advice to help you trade assets and invest money. Full-service brokers are the most expensive type of brokers, but they offer the most services and research.

Discount-service brokers: Discount-service brokers perform only the trading portion of investment management, but their services usually cost 50 to 75 percent less than full-service brokers. They are less expensive, but they offer fewer services.

Deep-discount brokers: Deep-discount brokers are even less expensive than discount-service brokers, because they specialize in only one area. Like discount-service brokers, these brokers do trading only, but they often cost as much as 90 percent less than full-service brokers.

Online-discount brokers: Online-discount brokers are similar to deep-discount brokers, and offer support for online trading. These brokers are often even less expensive than discount-service brokers, and they offer low-cost immediate trading and other services.

There are two additional categories of brokers: captive brokers and independent brokers. This delineation is generally made when investors are considering purchasing mutual funds.

Captive brokers: Captive brokers are brokers whose firm owns part of a mutual fund company. Because of the ownership connection with this company, these brokers are often encouraged to sell the firm’s mutual funds rather than the mutual funds from other companies. Investors should be aware of this connection and make sure that a broker’s investment recommendations are in the investor’s best interest instead of the broker’s best interest.

Independent brokers: Independent brokers are brokers that are not part of a major chain and do not own a captive mutual fund company. These brokers may be more inclined to give unbiased advice because they do not sell specific mutual funds from a parent company.


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