3 Types of Brokerage Companies to Know
Brokerage companies are investing middlemen. If you want to buy an asset, they'll find a seller; if you want to sell an asset, they'll find a buyer. Just like there are different types of investors with different needs, there are different types of brokerage companies that cater to these varieties of investors.
There are three different types of brokerage companies, each with its own pros and cons.
Full-Service Brokers
A full-service brokerage firm is like the Swiss Army Knife of investing. They not only offer means and a platform for investing, but they also provide a whole range of financial products and services. You can receive financial planning, consulting, and personalized investing advice. Most also offer wealth management services for those who want to sit back and let somebody else do the work for them.
Of course, all of these services and all'at don't come cheap. Full-service brokerage companies are the most expensive of the three options.
Examples: Fidelity, E-Trade, Ameritrade.
Best for: Investors interested in financial services outside of just investing.
Discount Brokers
A discount brokerage firm doesn't quite have all of the bells and whistles of a full-service brokerage firm, but they damn sure get the job done. If you're not interested in any financial planning or consulting services and just need a place to invest your money, a discount broker is probably ideal for you. They operate with one goal in mind: being a platform where people come to invest their money.
Because they don't have the extra fluff (I use that term loosely because those are valuable services if you need them), discount brokers are by far cheaper than full-service brokers—most are free.
Examples: Robinhood, Public.
Best for: Investors that do their own investment research and just need a platform to use.
Robo-Advisors
As with seemingly everything except IDs, investing has gone digital. Robo-advisors are investing platforms with little to no human intervention and direct decisions. Instead, investment decisions are made using algorithms. Investors typically just tell the app info like their age, projected retirement year, and risk tolerance, and the app will do the rest. All you have to do is provide the money.
Although it doesn't take much human decision-making, robo-advisors are still a bit costly. They generally charge a percentage of your total investment. For example, if the fee is 0.50%, you'll pay $5 per $1,000 invested.
Examples: Wealthfront, Betterment, Acorns.
Best for: Investors that want the least intervention and decision-making as possible. These are the "give-n-go" investors. Transfer your money and then gon' about your business.