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what are the pros and cons of going to a brokerage to invest in stocks, is...

what are the pros and cons of going to a brokerage to invest in stocks, is it better to do incest on ur own or going to someone

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Expert Solution

Full service brokers are provide the full wealth management services to the investors who open accounts accounts with them.

When an investor opens account with a brokerage firm, a representative is assigned to you his/her account who is also called account executive, registered rep, financial advisor or a relationship manager by the brokerage firm. This person usually has a security license registered with the securities exchange regulatory authority. He / she has a substantial amt. of knowledge about stocks in particular & investing in general. Examples of full service brokers are Merrill Lynch, Morgan Stanley. All brokers have now well developed websites to give a vast amt of info. about their services to the potential investors.

Pros of having full service stock broker

1) Offer guidance and advice - First you need to disclose your finances available to invest & your financial goals. The rep will make recommendations about the stock & Mutual funds that are mostly suitable to you.

2) Provide access to their research - They provide access to their investment research deptt, provides you with fundamental and the technical research reports of individual stock, thus giving an in depth analysis and info on a particular co.

3) Help you achieve your investment objectives - A good rep will first understand your investment capabilities and goals, then will offer advice and answers to all your questions. He/ she will devote his / her time to chalk out all the specific investment strategies and plans in order to achieve your wealth building goals.

4) Make investment decisions on you behalf - Many naive investors after investing with a brokerage firm don't bother about their investment decisions. Full service brokers can actually make decisions with your account with your authorization ( called discretionary account). This service is good but the investor should ask the broker to explain the choices to him.

Cons of having full service brokers

The points to be remembered while registering with brokerage firm -

1) The brokers and the reps are actually the sales people, No matter how well they treat you they are compensated based on their ability to generate revenue for the company and get commissions and fees from you on behalf of the company.

2) When a rep make an investment recommendation to you, be sure to ask him to explain in details and answer all your queries regarding the particular stock or fund, if he is unable to answer satisfactorily then don't take his advice.

3) Working with a full service broker is costly than of a discount broker. Discount brokers are paid for simply buying or selling stocks for you. Because full service brokers give advices also, so they are more expensive.Also, most full-service brokers expect you to invest at least $5,000 to $10,000 just to open an account, although many require higher minimums.

4) Handing over the entire decision making authority to your broker may be possibly negative , because letting others make financial decisions for you is a little dicey. If they make poor investment choices, then you end up losing all your money and also you may not have any recourse because you authorized them to work for you.

5) Some brokers engage in an activity called churning. Churning is basically buying and selling of stocks merely for generating commissions. It is good for brokers but bad for customers if your account shows a lot of activity then ask for justification from your broker. The commission of the brokers dig a huge hole in the finances of the individual investor, so one should not tolerate churning or any other unlawful activity.

6) A reputation for integrity - Over the past few years, there have been problems in the investment world with unscrupulous financial managers who were putting their own interests ahead of their clients. By signing with an investment firm that has a solid reputation in the financial world, you can experience the highest standards of personal and professional ethics.

Not every brokerage offers the same services, so it is wise to look around to determine which company best meets your needs. For example, some firms will allow you to log in to your account via the Internet and print out a detailed analysis of your portfolio, while others may not offer that feature.

By researching the services offered by various brokerage firms and talking with a few of them, you should be able to find an investment firm that you feel comfortable with.

With the advent of technology and quick success of online broking , discount brokers have become popular among the investors. Brokers who carry out the buy and sell orders online at a reduced commission rate are called discount brokers .

  


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