Financial AdvisorsFinancial Planning

Discount/Online Brokers & Mutual Fund Companies #DiscountBrokers #MutualFunds

By December 18, 2012 October 4th, 2016 No Comments

Discount and online brokers and mutual fund companies offer services that are fairly similar. Most of the firms offer mutual funds and discounted commissions on trading stocks and bonds. You can usually speak to a representative of the company (not your own adviser per se, but a member of a call center) or you can actually do mostly everything yourself online.

For the most part, these are “do-it-yourself” operations. If you know what you would like to do, these are the best places to go. They all offer many varied products for you to choose from, but no independent advice on how to use them. If you do want or need advice, these are not necessarily the best places to go.

All three types of firms are starting to offer advice, but it can hardly be characterized as being free from conflicts. Even the full-service brokers can sell you stocks or funds not only offered by their employers. If you call ABC Fund Company, what are the odds they will recommend an ABC fund for your needs? Pretty high since that is their job and they are on the phone awaiting your order.

Both the discount/online brokers and mutual fund companies have products that range from exceptional to truly awful, but how do you pick which ones to buy? Even if you choose the right products, how will you really know how much of them to buy? The representative of the company cannot give you objective advice. While their fees may be lower than some of the alternatives, you won’t be able to get independent advice at discount/online brokerage firms and mutual fund companies.

Despite the lack of independent advice, these places are still useful. I would advise investors to use low-cost index mutual funds and exchange-traded funds, and these are the best places to buy them. At our firm we use two discount brokerage firms, Charles Schwab and TD Ameritrade, to place trades for our clients and custody their assets, and we use some low cost mutual funds from Dimensional Fund Advisors (DFA) and Vanguard. We also have been a big buyer of exchange-traded funds from Barclays Global Investors (iShares). If you use an independent planner or adviser, they will likely use some or all of these firms, and a few other similar ones.

Michael Garry Yardley Wealth Management

Author Michael Garry Yardley Wealth Management

Michael Garry is a CERTIFIED FINANCIAL PLANNER™ practitioner and a NAPFA-registered Financial Advisor. He is a member of the National Association of Personal Financial Advisors (NAPFA) and the Financial Planning Association (FPA).

More posts by Michael Garry Yardley Wealth Management