When initiates delve into the deep, turbulent waters of the investment world, knowing just enough to cause problems often does just that. Even experienced investors can lose a fortune in moments. Choosing the right level of broker involvement-investment advisory services or online brokerage services-will give you a better chance of success.
Investment Advisory Services
The umbrella category of investment advisory services can encompass those of an online brokerage, but the key word is advisory. You can opt to allow the broker to manage your money on your behalf on a discretionary basis and in accordance with your objectives and risk tolerance. They must act on your behalf and not their own.
The broker should provide a service agreement which includes a comprehensive services outline. The outline should contain the type of services provided, fees, research, affiliations, and conflicts of interest.
As an investment advisor, the broker has a fiduciary responsibility toward you. Legally and ethically, they must act in your best interests, even if counter-intuitive to their own personal or professional interests.
Additional specific responsibilities to you may include:
1. Base advice reasonably and independently.
2. Execute trades in the most beneficial way possible when responsible for conducting them on your behalf.
3. Ensure their advice is tailored to your objectives, circumstances and need.
4. Obtain your informed consent before trading with you on their behalf, on behalf of another client or an affiliate’s account.
5. Give no client an unfair advantage over another.
Fees for an investment advisory service might be asset-based which is a percentage of the funds you place in an investment escrow account. The fees may be transaction-based, taking a set amount for each buy or sell trade. Low transaction fees have made online brokerage services and houses so popular.
Online Brokerage Services
In a strict application, a broker effect the trade orders you submit, whether buying or selling. The broker extracts a fee for the investment conduit service and has no influence over the profit or loss for any trade.
Extended services, however, can include publicly available but specialized information regarding the focus of the trade, whether it’s a company, a commodity, or a bond issue. The advice must be impartial and forthright, however.
Online brokerage firms offering extended services often provide various types or levels of investment escrow accounts, investment tutorials, and perhaps advice on a limited basis, depending on the brokerage firm and the brokerage agreement.
They can provide publicly known information on publicly traded companies that you request, if you opt for that level of service. Many brokerage firms tier services, and not all account balances or investment levels gain the same level of service. The firm usually outlines services rendered with or without fees according to each type of account. Often, you choose the level of service when you choose the type of account to open with that firm.
Summary
Look carefully at your financial goals, investment experience and knowledge, and your available time when choosing the level of online brokerage and/or advisory services that best suits your situation.