Brokers versus fund companies are the two main options that consumers have when it comes to locating a financial advisor to help them with their investment needs. There has been a recent trend in which discount brokerage houses offer a new option that was not previously available to investors. Clients now have the option of buying their shares of mutual funds directly from the brokerage house. What makes this more enticing yet is that fact that these purchases are usually made without any loads or fees as long as the client chooses to invest in a no load fund. There are obvious advantages to doing this as an investor, but also some disadvantages that ought to be pointed out.
There are clearly some big advantages for buyers. For one thing, a call or click gets a buyer direct access to hundreds and maybe even thousands of different funds. You get one concise statement at the end of the month, generally an easy to read document that simplifies things such as average annual return for you as an investor in terms of keeping track of what's going on with your activity as an investor and your activities in that department. You get direct and instant access to your investment capital for switching out funds or relatively quick access for pulling money out if need be. The minimum required financial investment is often lower with brokerage houses. And when you combine all of these investments there is only one tax form to file each year as a taxpayer. So clearly there are a lot of good reasons to choose to go this route as an investor and a consumer.
Even so, there are disadvantages to the one stop shopping discount brokerage supermarkets as well. Some of them do not include any access to portions of the market such as high yield bond funds or strategic income funds. Most discount brokers don't allow an exchange of funds between different families on the same day, forcing investors to wait until the first trade clears before they can proceed with the other the next business day. While many fund families will allow an exchange or redemption request as long as you get on the line with a rep by 4pm, many brokers won't honor these requests after 2pm EST. And some no load funds carry transaction fees.
Fund companies do not allow investors to choose their own adventure and simply buy into the funds they want without some interaction with a customer representative. And they are not as keen on getting investors their funds switched or pulled out quite as quickly as the brokerages tend to. They are a mixed bag for investors. They're more willing to work on redemption requests later in the day, but getting your hands on the money might take longer because the check could be awhile clearing.
The minimum investment required of investors in fund companies is sometimes higher than it is with brokers, although this is not always true. This is one point on which the various brokerages do not closely match up. Look carefully at the fees and the minimum investments required before you choose any particular discount brokerage over the others. Clearly all the major brokers have their strong suits; if they didn't, they wouldn't last in business for long. But if out of pocket savings are the primary issue (and they often are for investors who go this route), it definitely pays to do some homework on the benefits of brokers versus fund companies and get the tale of the tape for each one.
Our specialists will conduct a custom search to find local planners and advisors who meet your specific requirements.
"I wanted to be sure I met with an advisor who wouldn't just throw all sorts of financial jargon at me without explanation, and this site helped me find an advisor who was great at explaining things simply. Thanks!"
Sharon D, Tempe AZ