Traditional Broker vs. Online Broker
Americans enter capital markets as a means to grow wealth. Brokers are financial intermediaries who align investment dollars with entities in search of capital. The investment public often must differentiate between traditional and online brokers when making investment decisions.
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Identification
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The Securities and Exchange Commission (SEC) defines brokers as people who execute securities transactions on others' behalf. Discount, or online, brokers simply take orders to buy or sell. Traditional, or full-service, brokers make recommendations.
Regulation
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The SEC and the Federal Reserve Board set compliance standards for all financial intermediaries. Brokers pass examinations and are subject to laws that require them to act in good faith.
Process
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Traditional brokers, or financial advisers, put together financial plans for clients that consider income, risk tolerance and savings objectives. Online brokers direct clients to enter trades into the online interface---without any guidance beyond technical support.
Costs
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In exchange for higher levels of service, traditional brokers charge fees and commissions that are higher than those of online brokers.
Warnings
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Investors who don't have time to adequately research stocks should hire traditional brokers. Verify that all broker-dealer firms operate in good faith, in terms of transaction execution and designing a portfolio to match your needs.
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- Photo Credit Image by Flickr.com, courtesy of Perpetual Tourist
