Full-Service Broker Vs. Discount Broker
The key difference between a full-service broker and a discount broker is that full-service brokers provide investment advice and discount brokers do not. Because full-service brokers charge for the advice, they are more expensive than discount brokers. However, many other differences between the two have blurred over the years.
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Market Share
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Discount brokers have proliferated since the advent of online trading, with more and more customers opting to manage their own finances and trade online. As a result, full-service brokers have lost market share to discounters and had to consolidate through mergers and acquisitions or by becoming subsidiaries of large commercial banks.
Target Market
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Because full-service brokers can no longer be all things to all people, they've been increasingly concentrating on the affluent market--clients with substantial assets and specialized needs--although many wealthy investors prefer to do business with discounters.
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Services
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Full-service brokers set themselves apart by providing a multitude of specialized services, such as investment advice, financial and estate planning, wealth transfer, insurance, banking and lending. However, discount brokers have been closing the gap by adding services such as banking and mortgages. Full-service brokers prefer to do business in person through local branches; discount brokers have strong online platforms--some are purely Internet, while others have local branches as well.
Compensation
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Full-services brokers (who prefer to call themselves financial advisers, wealth managers or account executives) are compensated based on assets under management or through commissions on the products and services they sell. Discount brokers (registered representatives) are salaried employees. Full-services brokers justify higher fees and costs by offering a full range of services under one roof. With a discount broker, you only pay for what you use.
Deep Discounters, Independents and RIAs
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As traditional discount brokers add services to compete with full-service brokers, deep discounters have emerged that compete with the former by offering bare-bones online trading services at cut-rate commissions. There also are independent broker-dealers and RIAs (registered investment advisers) that offer a multitude of personalized services and advice, like full-service brokers, but operate independently. Independents use third-party platforms provided by independent broker-dealers. RIAs can have their clients maintain investment accounts at a discount broker but charge a separate fee for assets under management and financial advice.
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