Opening a Brokerage Account

Opening a brokerage account is an important first step toward achieving your financial goals. Brokerage accounts allow you to buy and sell stocks, bonds, mutual funds, and other types of investments. But with a variety of options that offer different prices and features, how do you go about picking the right broker?

Traditional versus Online Brokers

There are two broad categories of brokerages: traditional and discount (often called “online brokers”). Traditional brokerages are what typically come to mind when people think of financial advisors: professionals who guide you towards your financial goals. They offer a comprehensive range of financial planning services, including investing advice, tax advice, retirement and estate planning, and much more. While traditional brokerages provide a highly personalized experience, it comes at a cost. They can charge annual fees amounting to 1-2% of the assets they manage.

Discount brokers simply provide the online platform for you to trade securities. It is entirely up to you to make the investment decisions. Some discount brokers like TD Ameritrade do offer in-person advisory services, but because these are not part of their core product offerings, they are far less comprehensive than those offered by a traditional broker. That said, the cost of a discount broker is dramatically lower. In fact, most discount brokers don’t charge yearly account fees, and just charge a $5-$10 commission on the trades you make. Discount brokers are a more affordable option for the majority of investors, so we will focus on them. But if you want to learn more about traditional brokers, check out our Ask an Advisor platform for more information.

Where to Open an Account

Before you open an account with a broker, assess your financial situation. Are you in a position to invest, and if so, what are your goals? One of the main reasons that people don’t invest is the belief that they can’t afford to do so. Even if you are only able to contribute $20 per month,  it is still worthwhile to open a brokerage account and begin investing. For example, if you were to invest $20 per month for 30 years and you earned an 8% yearly return, your total contribution of $7,200 will have grown to $27,389. Giving your money time to compound is one of the core principles of investing, and a small amount of money can grow exponentially over the course of 20 to 30 years.

It is also important to have a clear financial objective in mind. Different brokerages are tailored towards different types of investors. Most people are investing for long-term goals like retirement or buying a home. For these investors, a broker should offer a variety of mutual funds and ETFs, provide quality customer service, and not charge account inactivity fees. On the other hand, more active investors will care about other factors, such as the price of trades, research offerings, and data tools.

The actual process of opening an account is incredibly simple and should take no more than ten minutes online. The challenge is selecting the broker that best fits your needs. For the majority of investors, there are several criteria that their broker should meet:

  • Commission-free mutual funds and ETFs with low expense ratios
  • Accessible and high-quality customer service (with access to brick and mortar branches)
  • Low account minimums and no account inactivity fees
  • Easy-to-use online interface

The Best Overall Online Brokers

Competitive pricing and usability along with top tier account features and premium services

 
  • Best deal for access to top tier research and powerful analytics
  • Mutual Funds & ETFs: 2,500+ no-transaction-fee mutual funds, 100+ commission-free ETFs
  • Customer Service: 100+ local branches, free consultation with advisor when you open an account, 24/7 phone & e-mail
  • Account Minimum: None
  • Commission Per Trade: $9.99
  • Promotion: Fund a new account with $2,000 to receive 60 days of free trades and up to $600
  • Learn more about TD Ameritrade
  • Sign up for TD Ameritrade
  • The most affordable no-minimum-deposit account
  • Mutual Funds: $9.95 to buy/sell
  • Customer Service: Available business hours on weekdays only
  • Account Minimum: None
  • Commission Per Trade: $4.95
  • Promotion: Refer a friend and both receive $50
  • Learn more about TradeKing
  • Sign up for TradeKing

TD Ameritrade is one of the few brokers that is compatible with the needs of first-time and experienced investors alike. Those who value in-person interaction can go to one of their over 500 branches to receive personal guidance. For investors who are more sophisticated and want to take a more active role in managing their portfolio, TD Ameritrade offers many useful features such as their weekly market research reports and easy-to-use mutual fund and ETF screeners.

TradeKing offers similar tools and capabilities as their larger competitors such as TD Ameritrade and E*Trade, but commissions are far cheaper at $4.95 per trade. The company has a simple user interface and differentiates itself with an active community forum where investors share and discuss ideas. TradeKing’s research offerings have dramatically improved since its merger with Zecco. An investor looking for a lower-cost version of TD Ameritrade or Scottrade should consider TradeKing. One thing to watch out for is a $50 maintenance fee that TradeKing will slap on any accounts that have an account balance less than $2,500 and have been inactive for a year.

 

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