Full-Service Broker Overview Pros and Cons FAQ

Full-Service Broker: Overview, Pros and Cons, FAQ

What Is a Full-Service Broker?

A full-service broker is a licensed financial broker-dealer that provides a variety of services to clients, including research and advice, retirement planning, tax tips, and more. However, commissions at full-service brokerages are higher than those at discount brokers.

Full-service brokers can provide expertise for people who don’t have time to stay updated on complicated issues like tax or estate planning. For those who simply want to execute trades without extra services, discount brokers are the way to go.

Key Takeaways

• A full-service broker provides a wide range of financial services, research, and advice.
• Additional services can include portfolio analysis and construction, estate planning, tax advice, access to IPO shares, access to foreign markets, and more.
• Discount brokers offer simple execution services for self-directed investors and traders.
• Full-service brokers inflate fees in their clients’ portfolios.
• Full-service brokers can be a good choice if you want expert research but still want to be active in the markets.

Understanding Full-Service Brokers

Full-service brokers offer customized support and interaction in facilitating trades, managing portfolios, financial planning, and wealth management services for clients. Clients are assigned individual stockbrokers and/or financial advisors, who are the main point of contact at a full-service brokerage firm.

Clients appreciate the convenience of having a personal broker handle all their investment needs. Most full-service firms provide online access and trading platforms loaded with research and analysis tools.

Full-service brokers provide a wide variety of services, but it’s important to check statements and trades to ensure fees aren’t inflated through excessive trading in your portfolio.

Advantages and Disadvantages of Full-Service Brokers

Full-service firms have large research departments with analysts who provide detailed reports and recommendations. They also have investment banking divisions that may provide certain clients access to special financial products like IPOs, senior notes, preferred stock, debt instruments, and alternative investment opportunities.

Full-service brokers often have their own product offerings like mutual funds, portfolio management, insurance, loan services, and ETFs. All full-service brokerages provide physical office locations.

A major disadvantage of full-service brokers is the higher price tag. Full-service brokers charge for their services, often in the form of transaction fees or a percentage of your portfolio.

Full-service brokers have access to a wider range of products, potentially benefiting their brokerage. They may steer clients toward investments that generate higher commissions for the brokerage.

• Deep understanding of products
• Tax-advantaged strategic insights
• Preferred access
• Physical locations
• Risk of transparency
• "Churning" items in a portfolio
• Much higher fees
• Lack of autonomous decision-making

Stockbrokers vs. Financial Advisors

Stockbrokers manage investments and provide financial advice. They must pass licensing exams and be registered with FINRA. Financial advisors cover a broader range of services such as estate planning, financial planning, insurance products, and tax advice.

What Do Full-Service Brokers Charge?

Full-service brokers charge more fees than discount brokerages. They charge transaction fees, hourly charges for discussing strategies, or a percentage of your portfolio. This can end up costing significantly more than discount brokerages.

What’s the Difference Between a Traditional or Full-Service Broker and a Discount Broker?

Full-service brokers offer personalized insights and market negotiation, while discount brokers provide tools for self-directed investors. Discount brokers still offer research tools, but their customer service is typically less comprehensive than that of full-service brokers.

What Do Full-Service Brokers Do?

Full-service brokers offer a personal approach to investing. They advise, help with research, and execute trades for clients. They also provide advice on tax-advantaged strategies and alternative investments. Full-service brokers charge higher fees, which is why some people choose to perform their own research and use discount brokers instead.

Is a Full-Service Broker Worth It?

A full-service broker can be worth it if you don’t want to do your own research or if you have a large sum of money and want to create a specific investment scenario. High-net-worth individuals who want to live off the interest and dividends of their investments may find the high fees worthwhile.

The Bottom Line

Using a full-service broker comes down to whether you’re willing to pay more for a service that delivers more. Discount brokers charge less but provide less advice and research. Full-service brokers can create intricate investment portfolios with their expertise, something discount brokers typically can’t provide.