Stock Brokers | Discount Stock Brokerages | Mutual Fund Companies

How Stock Brokers and Mutual Funds Can Help with Your Financial Planning

Stock Brokers

Stock brokers are salesmen, pure and simple. If they call recommending a specific investment, it is likely that they will get a bonus for selling enough of it that day.

A stock broker's income - and career - is based on the amount of commissions he generates.

So if you are looking for a stock brokerage firm to handle your investments, take that into account.

Discount vs. Full Service Stock Brokerages

Although "full service" brokerage fees have undoubtedly come down and the actual services provided has increased in the face of competition from "discount brokers", you will still pay more for the privilege of doing business with the full service firm.

Remember the scandals that have been uncovered in recent years with the so-called independent ratings granted by these firms to certain stocks.

Personally I would stick with a broker such as Schwab, Ameritrade, E Trade or Scottrade and make my own investment decisions. These firms offer tons of analysis to allow you to make your own reasonable investment decisions.

Frankly if you can't be bothered with taking the time to learn about stocks or bonds, stay out of the stock market and use mutual funds instead.

These firms offer all the services of the full service brokerages at lower costs. Most of them do not allow their representatives to recommend specific products and they are not paid on commission.

There are some smart, helpful stock brokers who work at the full service brokerages, who can help you with your investing. If you find one and are happy with him or her, more power to you. However, never give a stockbroker discretionary authority to trade for you.

The desire to “churn” accounts – trade excessively to earn commissions – seems too much for many brokers to resist. If you read the Wall Street Journal, there is a long list of sanctions entered against brokers published weekly.

If you want to check your own brokers record, go to National Association of Securities Dealers website and search your broker's name.

Be aware that some brokerage houses are now titling their sales reps, or stock brokers, as Financial Consultants or even Financial Planners. If in doubt, ask for their form ADV which will disclose potential conflicts of interest.

Remember stock brokers, no matter what they call themselves, are in the business of generating commissions. That is the only way they make money and get promotions. Be guided accordingly.

Mutual Fund Companies

Mutual funds are pools of money invested in the stocks and/or bonds that meet the objective of the fund - aggressive growth, balanced, large cap stocks, etc.

There are hundreds, if not thousands of categories of funds.

Mutual funds have faced their own scandals in recent years, although I don't believe anyone lost any money because of them.

Be that as it may, you can buy funds directly from the fund companies, such as Fidelity or Vanguard or through brokerage firms. Many brokerages do not charge loads - sales charges - for many of the funds they sell.

Mutual fund investing is of the "Get Rich Slowly" type. Pick a good fund with low expenses and stick with it. Over the years, you will likely see your wealth multiply.

While there are many services and newsletters that make fund recommendations, mutual funds are ideal for the uneducated or lazy investor.

Using the Vanguard Group, well known for its low fees, all one needs to do is put 50% in the S&P 500 Fund, 25% in either a taxable or tax-free long-term bond fund and the rest in a money market fund. This is not sexy, nor necessarily the best way to invest, especially when you're younger, but it will get the job done if you know no better.

Low Cost Financial Planning

Some stock brokerages, like Charles Schwab & Co and mutual funds like Fidelity and Vanguard offer free or low cost financial advice. Unlike the personalized service you will get from a CFP or a CPA, you will be given forms to fill out and then receive a generic plan.

However, professionals who have reviewed these plans have found little fault with them. If you just want a nudge in the right direction this may be the way to get your personal finances on track.

Again watch out for conflict of interests. Schwab will not recommend specific investments or products. Vanguard or Fidelity might favor their own funds. Since these companies’ funds are among the best, look into past performance, fees and expenses and decide whether the fund is right for you.

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