March 16, 2007, Newsletter Issue #58: Discount Brokers
Tip of the Week
Discount brokers came into existence in 1975 when the New York and American Stock Exchanges agreed to abandon the minimum commission schedule previously imposed on all members. These new, less-binding regulations encouraged the emergence of discount brokerage firms that charged lower commissions in return for less personalized service. Discount brokerage houses vary widely, but almost always have cheaper fees and commissions than full-service houses. Personal attention and specific investment advice are generally not part of the picture, but the discount broker usually offers convenient access to trading and customer services through a toll-free telephone number. Brokers at discount firms are often paid relatively more in salary and relatively less in commissions than their full-service counterparts, giving them less incentive to induce you to trade. On the other hand, the lack of sales incentive may make your dealings with a discount firm more impersonal, and often you will not deal with the same individual on a regular basis. Note that the gap in the degree of service between full-service and discount firms has narrowed considerably over the past decade, as has the gap in commission rates.
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