Discount Stockbrokers

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In 1975, standardized brokerage prices were abolished by the gov- ernment. Prior to that time, buying a share of stock cost the same regardless of where it was purchased. The change in the law meant that brokers and brokerages were left to their own devices to determine how much their services were worth, and investors were finally free to decide how much they were willing to pay. That, coupled with the proliferation of information via the media and Internet along with the explosive growth of individual investors (we do talk amongst ourselves after all), led to the introduction of a whole new breed of brokerage, the discount brokerage.

Discount brokers all have one thing in common: You pay for what you get. In the world of full service brokers, investors are usually charged the same price regardless of how many of the brokerage's services they utilize. Most discount brokerages have a price structure broken down like a menu. If you want advice, it costs a dollar. You want to place your trade in person? That costs another dollar. The benefit to this, of course, is that if you already know which stock you want to buy, you will pay much less to simply place the purchase order than the investor who wants to sit with the broker for three hours discussing his or her options.

Plain English

A discount broker provides his or her services piecemeal or la carte. Discount broker clients are usually charged only for the services they use.

In addition, discount brokerages are no longer the renegade firms of Wall Street. The full service brokerages learned quickly that in the evolving world of finance they either adapted their price structure or died. That being the case, almost all of the full service brokerages introduced discount brokerage services within their own firm or in a subsidiary. Investors are now free to have their cake and eat it, too: With this setup, when you need full service, you get it (and you pay for it, too); and when you simply need an action (such as buying or selling a share of stock), you get that, too.

You can find discount brokers advertised in any of the places you find full service brokers ”Appendix B, the financial pages of your local newspaper, and so on. When contacting the brokerage firms, most will tell you up front what services and plans they offer (much like checking and savings accounts at your local bank) and you would then choose those services or plans that most appeal to you.

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