Brokerage accounts – a necessary evil for the accidental investor? - Financial Planning FocusFinancial Planning Focus

Who is the accidental investor? It’s the tech genius who moves from company to company, participating in 401(k)’s, which he forgets once he moves on to the next opportunity. Or perhaps it’s the self-employed entrepreneur whose CPA told her to set up a retirement account at year end. Or maybe it’s the working Mom who recently inherited a small next egg she would like to use to fund her kid’s education. What should they do? Well, if they opened a brokerage account, it would give them a place to consolidate all or most of their investments. They would get account statements, which would provide a listing of all their assets and, most likely, include a breakdown of their holdings by investment category.


So, what is a brokerage account? It’s an account at an institution licensed to buy and sell securities for its account holders. It’s not a bank, although many banks may have a relationship with a brokerage firm and may even house a brokerage’s firm employee in the bank’s lobby. Confusing right? Accidental investor or not, it’s important to know what kind of brokerage firm is right for you. For example, you could choose a full service brokerage firm. These companies not only take custody of your assets, but they can also make trading decisions with or without your specific permission for every trade. There are also discount brokerage firms, where the person who makes the investment decisions is you. [Just to make it even more confusing, some discount brokerage firms have begun offering investment management services.]. Which is what, and which is better? It depends if you to want hand off the responsibility for your investments, or whether you want to be actively involved. Of course, you pay more for investment management whether it’s at a discount or full service brokerage firm, or through an independent investment advisor. Let’s say you want to self-manage. What do you need to know to select a brokerage? Well, at a minimum, you should consider: the fee schedule, convenience in making transactions and establishing an account, the breadth of investment choices, and whether you have access to a walk-in office. When you start talking about fees, then you need to know what you’re buying. Most likely you’re considering mutual funds, index funds or Exchange Traded Funds [ETF’s.] ETF’s trade like stocks so there is a commission fee for every purchase or sale. You would want to know the cost to buy/sell an ETF. If you’re going to be a mutual fund investor, remember that not all firms carry all families of funds of families, and some discount brokerage firms charge extra for certain fund families. You might especially pay attention to the selection of – or the absence of — no load and no transaction fee funds. What if you don’t know what you want to invest? Well, a fee-only hourly planner can help you develop an investment plan that you can implement. You pay by the hour versus paying a percentage of your returns.	Still, there are other factors to consider:If you want to use your brokerage account as a savings account, is there free checking, a debit card offered, online bill payment? FDIC insured options For investment purposes, you may want to know Are there are account minimums? What is required for tracking cost basis? Can you execute trades by phone or a mobile application? Is there a cost for brokerage customer support assistance? Can you get real time quotes? Do you have 24-hour access to account information? Do you have instant access to statements and confirmations? Are there transfer fees? I know. It’s a lot to consider. That’s why I did the work for you. I researched the leading discount brokerage firms, getting answers to the questions I described above, and compiled a report that I will make available to you. Please email me at celeste@financialplanningfocus.com if you’re interested in receiving the free report. And, do you want to better understand your investments and create a low expense, passive portf olio? Then give me a call at 415 785-3268 to set up an initial complimentary appointment to find out if working with an hourly planner is the right first step before you open any brokerage account.