Money Guide How to Pay Your Broker Great Ideas Collection
Borrowing
There are two basic methods for paying your broker: through commissions and through asset-based fees:
  • Commissions - This traditional method of payment normally is best if you are a "buy and hold" type of investor who trades infrequently. At full-service firms, around 30-40% of the commission becomes compensation to the broker. Beware, however, that your broker is incented to encourage you to trade.
  • Asset-Based Fees - Both full-service and discount brokerage firms offer the option to pay a fee that is a percentage of the value of assets in the account. With this fee comes the right to make a certain number of trades during the course of a year with no per-trade commissions. There are inevitably exceptions and exclusions, which you should be careful to note. If you trade often, this may be a more economical alternative to pay-as-you-go commissions. This method also removes any incentive for a broker to induce you to trade excessively (commonly called "churning" an account).
Keep in mind that commissions and fees are negotiable within limits set by the firm. This means that if you do a lot of business with a firm, you have some leeway to bargain for discounts off the standard commission and fee schedules.



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Topic contents Mark Kolakowski and CliqueFriends, LLC, 2004
Saving/Banking
Investing
Discount Brokers
Full Service Brokers
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