Discount Brokers Vs. Full Service Brokers
The principal difference between full service and discount brokers is that full service brokers provide investment advice and asset management as well as trade execution, while discount brokers only provide trade execution. Since full service brokers charge for the advice and money management, their commissions are much higher than those of discount brokers. However, the line between the various types of brokers has blurred over the years.
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Full Service Brokers
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Full service brokers have lost a great deal of business to online trading because investors who like to make their own investment decisions have migrated to online discount brokers. As a result, most full service brokers focus on high net worth individuals with substantial assets who do not have the time or knowledge to manage their own money. Full service brokers have long been blamed for the conflict of interest inherent in their compensation structure, which was based on trading commissions, so now most charge a flat fee based on the percentage of assets under management. To justify their high cost, full service brokers also offer specialized advice and services, such as tax and estate planning or mortgages.
Discount Brokers
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Discount brokers' registered representatives are salaried employees who do not have a built-in incentive to encourage clients to trade. However, competition has forced traditional discount brokers to offer other specialized services, such as financial planning in addition to trade execution. Since the bulk of their revenue comes from trading commissions, discount brokers have advanced trading platforms that provide instant trade execution and a host of other services, such as charting and access to financial and research data.
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Deep Discounters
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The newest addition to the broker lineup is deep discounters. Competition has certainly lowered all trading commissions, but while traditional discount brokers compete by adding more services at a reasonable cost, deep discounters focus on trade execution and access to more markets at cut-throat rates.
More Competition
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The broker landscape is constantly changing. Some mutual fund companies have added discount brokerage services, while some traditional discount brokers have rolled out their own mutual funds. It is reasonable to expect that new forms of competition will emerge as the Internet evolves and global competition intensifies.
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