How to Select an ETF Broker

Exchange-traded funds (ETFs) are a type of security that is gaining popularity among investors worldwide. ETFs are unique because they track an index rather than an individual stock. Unlike actual index funds, you can invest in ETFs with relatively small amounts of money and buy as little as one share. You must buy ETFs through a broker, and you need to know how to select a skilled one.

Difficulty: Moderate

Instructions

1. Set up an in-person interview with potential brokers. If you want to consider larger brokerage houses that are located far away from where you live, then you should be able to set up a telephone interview with them.

2. Ask the broker how long he has been involved with ETFs. Since these types of securities are relatively new, you may find that some smaller financial institutions have limited experience with them. Any broker will be able to purchase an ETF for you, but you may want to select one with experience if you want to get investment advice.

3. Find out what the average yearly gains are for the broker's clients. She will probably be very forthcoming with the higher statistics, but find out if there are any accounts that had an annual loss in value. Also ask how many clients the broker has and how well she knows each one.

4. Discuss your general expectations for investment consultation. Explain your specific goals to each broker and whether you want to save for retirement or look for short-term capital gains.

5. Talk about how often you'll go over your investment plan with your broker. Many ETF investors like to reevaluate their holdings biweekly. Your broker may suggest a monthly portfolio evaluation if you plan to save for retirement and invest in less-volatile ETFs.

6. Find out how your broker will help you track your investments. Some larger institutions post financial quotes on their websites for their clients to use, but others provide minimal tracking without additional commission fees. You may not need to talk about tracking if you already have your own methods for following the stock market online.

Tips & Warnings

• Select a broker with minimal commission fees if you are making small investments. Fees vary by broker and are often negligible for buy and sell orders of more than $1,000.
• Be sure to ask if the broker charges an extra fee for automatic buy and sell orders that you place on your stocks.

[buffalo49]

on 8/8/2009 I am thinking of dipping my toe into
EFTs, this was a very helpful article. Looking at setting up an account with TradeKing. What do you know about them and who would you recommend. thanks.