switching brokerages

raee_gwJanuary 17, 2007

This is somewhat related to the topic about financial advisers. I had one who has closed her business due to illness; she arranged for another firm to take over my account. Just before this happened I had agreed to the account management set-up where she gets 1% of the assets under management. Since the change (six months), I have had no contact other than statements from the new firm. They are stilll taking the fee. Most of my investments are mutual funds, and several are index funds, at that, altho she was helping me to choose some other kinds of investments as well. I really think now that I am paying too much fee for what?

So I was wondering if anyone here could share their experience with firms like Scottrade, Schwab or Ameritrade. Are these the kind of firms that I am looking for, where I can park my holdings without paying big fees and get info when I need to make an investment decision?

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I've been a customer of Vanguard for 10 years or so. I like them because they pretty much invented index funds, they have a wide variety of funds available, and their fees are among the lowest in the industry.

For most of their mutual funds, you need $3,000 to open an account. One of their funds has only a $1,000 minimum. If you have less than $10,000 in a fund, they will charge you $10/year as an account maintenance fee. There is an additional $10/year charge if your balance in a fund goes below $2,500.

If you want to use Vanguard to buy other companies' mutual funds, you can do so through a brokerage account. They charge $30/year to maintain a brokerage account. Fees to purchase and sell non-Vanguard mutual funds are either zero or $35 per transaction, regardless of size, depending on the particular fund in question.

I can't think of any other account-maintenance fees. Basically, you manage it yourself, either by phone, mail, or Internet. If you have enough money invested with them, they will help you with financial planning at no extra charge; otherwise you can buy financial-planning services from them.

I can't say anything about Scottrade, Schwab, or Ameritrade, as I haven't used them. My impression is that their trading fees are lower than Vanguard's if you want to buy stocks or multiple companies' mutual funds. However, Vanguard's funds are fine for almost all of my purposes, so I figure I might as well go directly to the source.

    Bookmark   January 17, 2007 at 4:44PM
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I've used both Vanguard and Fidelity. I transferred to Fidelity since their rates were lower and to consolidate my investments with my husband's. I've been very happy with both brokerages. Fidelity has more on their website for analysis and planning than Vanguard which I've liked. However, Fidelity "recommends" some mutual funds when you do your planning and my own research has found their "recommendations" to not be the best funds.
BTW, we own mutual funds (index and actively managed) and stocks.

    Bookmark   January 18, 2007 at 11:01AM
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Thanks, alphacat & chloe, I will check them both out.

    Bookmark   January 19, 2007 at 10:48AM
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My broker, OptionsXpress, does not charge fees, and there is no minimum to open an account. Although they are primariliy an options trading firm, you can buy stocks through them.

    Bookmark   January 26, 2007 at 8:32AM
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Chemocurl zn5b/6a Indiana

I believe that the 1% you are paying is for them to see that you have a healthy mix of things for where you are in your life and savings. Possibly they just review and regroup every so often...6 months or yearly?

If you are comfortable in making those decisions for yourself then I say 'go for it'.

I have been meaning to check out Scottrade for a while as their transaction fees look to be some of the best.


    Bookmark   January 26, 2007 at 1:38PM
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I second the vote for Fidelity. They don't have management fees and they have excellent, 24-hour customer service, as well as a very well-thoughtout web site. Their brokerage fees are very reasonable, and you can switch between their funds without having to pay fees or trigger taxes. I have been a Fidelity customer for 20+ years and am quite pleased. In fact, I recently decided to consolidate all of my investments by closing my accounts at my regular broker, and moving them to Fidelity. The Fidelity folks made this very easy, and even got on the phone with me in a conversation with my broker to figure out the best way to transfer some of my more obscure investments. And last, but not least, I've had a very good overall return with my Fidelity funds over the years.

    Bookmark   January 26, 2007 at 2:36PM
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I like Ameritrade without maintenance fees for my personal stock trading. The internet trading fees are $9.99 per trade & stay up on the market through various research.

Morgan Stanley is my choice for a financial advisor who had helped my father over the years build his acct. Using this same person I've been pleased with my mutual funds.

I had been with other brokerages, but feel this is a stopping point for me....using these two. It's competitive out there. For me, once I found a trusting advisor who gave me a personal touch & am comfortable with I will continue being loyal.


    Bookmark   January 27, 2007 at 3:21AM
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I have Oppenheimer and am swithching to Vanguard. Vanguard has minimal fees and their funds perform well. Oppenheimer fees are cutting into my profit to much.

    Bookmark   January 27, 2007 at 10:45AM
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Investment advisers vs. brokers: Know the difference
Boomer Bucks by Barbara Whelehan Bankrate.com

True or false: Financial planner, financial consultant, investment adviser, stockbroker -- these are all titles for people who provide essentially the same types of services, right? True. So there's no need to concern yourself about how they differ from one another, right? False.

Actually, there's a wide chasm between brokers and investment advisers, though you can hardly tell if you just go by their titles. That's because in recent years, brokers have been recasting themselves as financial consultants, offering a slew of wealth advisory and financial planning services, on top of their usual job of buying and selling securities.

"Many would claim that the brokerage industry deliberately makes this differentiation difficult for the public by using such labels as 'financial adviser' and 'financial consultant' for a role once called 'stockbroker,'" says Michael Kitces, a certified financial planner and director of financial planning for Pinnacle Advisory Group in Columbia, Md.

The difference is legal

Brokers are held to a different standard than registered investment advisers. The latter must abide by the rules of the Investment Advisers Act of 1940, which legally obligates them to act solely in the best interests of their clients.

Brokers, meanwhile, are regulated by the National Association of Securities Dealers, which imposes a "suitability standard" rather than the stricter fiduciary standard. This simply means an investment sold by a broker must be suitable for the client. Critics say the standard is loose and allows brokers wide latitude in recommending products that often serve the brokers' interests as much as or even more than those of their clients. Proponents say the NASD rules are just as stringent as the SEC's, so brokers shouldn't be subject to duplicative regulation.

Earlier this month, the Securities and Exchange Commission overwhelmingly approved a 1999 proposal that officially allows brokerage firms offering fee-based accounts to be exempt from registration and regulation as investment advisers. The controversial decision drew approval from key congressmen on the House Financial Services Committee, but the ire of financial planners who say brokers continue to have an unfair advantage by selling "lots of services with minimal liability," in Kitces' words.

A bit of background

The SEC's ruling that exempts brokers from registering as advisers actually upholds the law as stated in the Investment Advisers Act of 1940. Brokers were exempted 65 years ago in part because they were regulated under provisions of the Exchange Act, enacted in 1934.

So why resurrect this ruling? The SEC initiated the proposal in 1999 in response to changes in the market place, in particular the introduction of fee-based brokerage programs, which changed the way in which brokers were compensated for their services. Until fee-based programs came along, transaction fees made up the bulk of brokers' businesses.

Last summer, the Financial Planners Association filed suit against the SEC because even though the 1999 proposal had not been approved, the brokerage industry was conducting business as though it had. The lawsuit was put on hold while the SEC gathered public comments on its proposal.

In the end, the SEC concluded that the fee-based programs were not "fundamentally different from traditional brokerage programs," and in fact afforded "important benefits to brokerage customers." The fact that the programs generated asset-based fees of between 1 percent and 2 percent rather than transaction-based fees alleviated concerns the SEC had "about the incentives that commission-based compensation provides to churn accounts, recommend unsuitable securities and engage in aggressive marketing of brokerage services."

So these changes in the brokerage business represent a win-win for brokers and consumers alike, in the rose-colored analysis of those in the securities industry. It's an especially big win for brokerage firms, which have attracted nearly $269 billion of assets into fee-based accounts, double the amount five years ago, according to Boston research firm Cerulli Associates.

That's not to say that the SEC is unconcerned about the trouble consumers have in distinguishing between investment advisers and brokers. To that end, the SEC will require brokerage firms to disclose in plain English that they offer brokerage accounts -- not advisory accounts -- and also the fact that brokers' interests may not be the same as those of clients.

Will consumers recognize these red-flag statements and run? Probably not.

In sheep's clothing

My educated, intelligent friend Pam learned the hard way about how divergent such interests can be. She opened an account with a broker in the mid-1990s, during one of those downdrafts in the midst of a roaring bull market. She's a trusting soul, so she went along with her broker's recommendations. Within three months he decimated her account, shorting stocks that went up, going long on stocks that crashed, until it became a mere shadow of its former self. He was slick, came up with reasons for the failures, kept offering solutions to get the money back. She closed the account after losing 90 percent of her assets.

Another friend, Tom, once worked for a small full-service brokerage firm in New Jersey. He now works for a discount broker that hires certified financial planners and does business with investment advisers, and says the difference in the way clients are treated is stark.

He explains that when you see a broker, you normally fill out an application, outlining general parameters, such as your income, risk tolerance and investment goals. Armed with this information, a broker still has a wide range of flexibility with what he or she can sell you.

"They can't do something egregious. If an investor is conservative, they probably wouldn't push penny stocks on him. Most wouldn't do that. But there's a lot of gray area in the middle where a disservice could be done to a customer."

Pressure to sell vs. option to sue
For example, brokers may be pressured to sell particular products, and whether these products are appropriate for their clients is open to interpretation.

"You get better incentives, better commissions on some mutual funds than on others, and that could cloud someone's recommendations a little bit."

Meanwhile, Tom says, investment advisers must be upfront about what they do. "There's a lot more two-way communication before any advice is given at all. Their guidelines are lot more strict. Brokers are held to less account. It's not necessarily their fault, just a result of their pay structure. They get focused on selling product and not seeing the bigger picture."

So the main difference is that brokers are under pressure to sell (the top producers are in big demand), while advisers are obligated by law to serve your best interests. Of course, that's not to say that all brokers are ruthless, or that all investment advisers are ethical. Any financial professional can break the rules and do a disservice to the consumer.

But if you get into a dispute with an adviser, you can sue. With a broker, you have no choice but to settle the matter in an arbitration hearing. Investors waive their rights to sue thanks to standard clauses in their brokerage account contracts.

Brokerages in the news

In recent months we've seen the SEC and the NASD take action against brokerage firms for a wide range of misconduct. Some of it had to do with cozy revenue-sharing agreements between mutual fund companies and brokers who push their funds. Some of it had to do with brokers selling inappropriate (meaning more expensive) share classes of funds to investors.

Citigroup, American Express, Edward D. Jones & Co., and J.P. Morgan Chase were among firms paying fines to settle such charges. Of course, as is standard practice, none of these companies admitted or denied wrongdoing.

SEC chairman William Donaldson has publicly stated that the agency continually strives to inform investors about broker conflicts and compensation. I hope that message will seep through to consumers.

Longtime financial journalist Barbara Mlotek Whelehan earned a certificate of specialization in financial planning.

-- Posted: April 27, 2005

    Bookmark   January 28, 2007 at 6:10PM
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And while we're at it...

    Bookmark   January 29, 2007 at 11:01AM
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Sorry for the long previous post. Was unable to find the link.

Here is another link that might be useful.
www.smartmoney.com/Personal Finance

Changing Partners By Will Swarts
When your advisor goes solo or changes firms, should you stay or should you go? When Financial Advisors Defect, Clients Must Make a Big Decision

    Bookmark   January 29, 2007 at 12:57PM
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If you are willing to invest in a retirement fund which targets a particular retirement date, then I am not sure you really need any more asset allocation advice. These types of funds adjust their risk as they approach a target retirement year. These are perfect to "set and forget". These types of funds are available from both Vanguard and Fidelity.

My experience so far is with Fidelity, suggested by my advisor at Ameriprise and purchased through thier brokerage. After doing this for one year, I have realized two mistakes: 1) The shares of the Fidelity fund were available in 3 classes, a, b, and c. My advisor stated the differences were the cost to buy and sell at these class levels, but what ws NOT explained to me was the expense ratios. My advisor suggested class C, but failed to tell me that the expense ratio was the most expensive, 2.25%! I should have purchased Vanguard instead. 2) I should have never used Amerprise brokerage. I should have used something where my advisor -does-not-make-a-commision!! Her advice was not in my best interest, but had her interest (a comission) also.
Now I asked why she steered me to Fidelity, and eventually I got the real answer (she makes a comission on it, but not on Vanguard). But she still tried to justify this because if I bought Vanguard through her brokerage, it would cost me $40/trade, and at my trade intervals, that would cost me about 2%. However, she failed to mention I can purchase this fund for free directly at Vanguard. Again, acting in her best interest.

I decided to check with Vanguard on a similar fund (Retirement 2035 fund), and the expense ratio was about 0.29%, almost 2% less!!! This is a HUGE difference!! I am in the process of moving my Fidelity funds over to Vanguard, with no cost to purchase, 2% expense per year, and no maintenance fees.

So, the make a long story longer, don't assume you need a advisor to alocate your assets for you. There are plenty of very low cost funds out there that can target your progession to retirement. Don't be fooled into thinking someone can out smart the market -they can't no one has ever done that with consistency. If you need general financial advice, pay for it, by the hour, or some contract that has no fee related to your assets.

    Bookmark   January 29, 2007 at 10:02PM
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My understanding is that any fund with an A, B, or C after its name is a load fund. If it's A, you pay to buy it; if it's B, you pay to sell it; if it's C, you pay while you hold it.

I have never seen any credible claim that load funds offer anything compared to their no-load counterparts--beyond a way of paying the people who sell them to you. In particular, I have seen several articles that claim that load funds perform no better than their no-load counterparts (even if you ignore the cost of the load), and none that claim that load funds outperform others.

Interestingly, Vanguard permits you to buy many (although admittedly not all) other companies' mutual funds through their brokerage. They charge $35/trade, and if you want to make a series of identical investments in the same fund, such as depositing a fixed amount from each paycheck, I think they charge only $3 per transaction.

You do have to have a brokerage account with them, which I think costs $30/year to maintain.

These prices go down if you have $250,000 or more invested with them.

    Bookmark   January 30, 2007 at 11:16AM
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Why not just buy stocks directly?

That way, if you can match the mutual fund managers' growth rates, you pocket the annual fees which they receive.

And darn few of them beat the market averages.

In fact - why not just buy a piece of the average, if you feel that investing in stocks directly is too difficult for you?

Those fees are lower than those charged by most mutual funds.

Learn how money works - an interesting hobby that pays well.

Nobody care as much about your money as you - except some folks that'd like to slide some of it from your pocket into theirs.

ole joyful

    Bookmark   January 30, 2007 at 4:51PM
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thanks for sharing your experience. I always felt if someone was truly gifted at investing, why would they need me? They can do it for their own account

    Bookmark   February 13, 2007 at 9:09AM
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