Using a Discount Stock Brokerage

In today’s hypercompetitive brokerage environment, investors have more options than ever before. Traditionally, the only option open to investors was the expensive full-service brokerage account. Under this structure, you typically have a direct relationship with a “so-called” financial advisor who provides you with both advice and trade execution. The level of personal service and quality of counsel varied tremendously but in most cases brokers failed to justify their high fees. The costs could be significant (easily 3% per trade – so a $10,000 trade would cost $300 on the BUY and another $300 on the SELL).

Roughly around the mid-1970s, another option appeared for investors – the Discount Brokerage. Unlike the full service brokerage, discount brokers did not provide investors with any type of individualized advice. The objective of the discount brokerage was purely to execute trades as ordered by the client. The benefit was that they operated under a far more attractive cost structure than the full service alternative. Since most investors found that the were not receiving satisfactory advice from their full service broker, they elected to move their accounts to a discount brokerage with the intention of either managing their investments independently or utilizing the advice of a third-party. With the advent of the internet, discount brokerage exploded and costs to investors continued to decline. Particularly since 2007, we have seen a staggering increase in competition between discount brokerages which have further reduced trading costs to levels never thought imaginable even over decade ago. Most investors can now qualify for rates of less than $9 per trade and often less than $5 per trade. 

As an investor it is important to understand the options that you have available. Not all full service brokers or financial advisors are necessarily bad. No doubt some are very competent and provide a high level of service, but as an investor you need to know what you are paying them in commissions and ensure that the advice they are providing you is worth the extra fees.

Things to Consider When Selecting a Discount Broker

We talked about cost as being the primary reason why more and more investors are selecting to go the route of the discount brokerage. First and foremost, you need to find a broker that can provide you with a competitive fee structure which should be no more than $9 per trade (and often less). But there are other considerations as well. When you log into your account you will have to use the brokerage’s trading platform to view your stock holdings and make your trade orders. It is important that you are comfortable using that brokerage’s particular platform and that it provides the features that you need. There is also customer service. From time to time, you will likely need to contact the brokerage to ask questions or deal with problems and it is important that your needs are dealt with in a prompt and professional manner. Some discount brokerages also provide educational resources which may also be of use.

One tool you can use to help in your quest to find the best discount brokerage is the website http://www.surviscor.com. Surviscor produces free analysis and reports on discount brokerages throughout Canada. The website reviews and rates each individual brokerage based on seven categories:

1. Getting Started – Public Site Review
2. Website Design
3. Account Services
4. Market Intelligence
5. Website Transactions
6. Online Resources
7. Cost of Services

It is also important to understand that discount brokerages make their money through trading volume. As a result they do what they can to encourage you to trade as much as possible. They try to achieve this goal by basing a lot of your educational features, their platforms, and fee structures around high-frequency trading strategies. Don’t be fooled…this high-frequency trading is good for them, but it is not for you. Benefit from their competitive fee structure but don’t get suckered into modifying your strategy to make them more money. 

How to Find a Discount Broker

This is the easy part – discount brokers are everywhere. All of the major banks currently offer discount brokerage services. Your first step may be just to contact your current bank and ask them what they have to offer in that area. The table below provides a comprehensive list of Canadian discount brokerages to get you started in your search. You don’t need to overthink this step of the process. Just find a brokerage that provides you with a competitive cost structure, an easy to understand trading platform, and that provides good customer service.

KeyStone’s Latest Reports Section

8/2/2013
UNIQUE INDUSTRIAL TECHNOLOGY COMPANY POSTS 50% SHARE PRICE GAINS SINCE JANUARY, SOLID BUT WEAKER Q3 AS EXPECTED, STRONG CASH POSITION (38% OF MARKET CAP) – MAINTAIN RATING LONG TERM

7/26/2013
RATING CHANGE ON MANUFACTURING COMPANY TO HOLD FROM BUY BASED ON WEAKER-THAN-EXPECTED Q2 RESULTS – LONG-TERM PROSPECTS REMAINS SOLID

7/25/2013
EXTRUSION & AUTOMOTIVE MANUFACTURER REPORTS A RETURN TO GROWTH IN Q3 2013, OUTLOOK REMAINS POSITIVE DESPITE 65% GAIN IN STOCK – BUY RATING MAINTAINED

7/22/2013
DEEP DISCOUNT OIL & GAS SERVICE STOCK WITH INTERNATIONAL/CANADIAN EXPOSURE, NEAR-TERM GROWTH LIMITED BUT SOLD LONG-TERM GROWTH POTENTIAL, CASH GENERATION, GOOD NET CASH POSITION & 7% DIVIDEND – INITIATE FOCUS BUY

7/18/2013
ENERGY, UTILITY, & INFRASTRUCTURE SERVICES COMPANY POSTS RECORD Q1 GROWTH FROM ACCRETIVE ACQUISITION, SECOND ACQUISITION POISED TO ADD GROWTH IN SECOND HALF OF 2013 – INITIATE COVERAGE WITH BUY RATING

The issue is no longer one of waiting to see what the government is going to do; the real issue is what are we as investors going to do?

When I say the investment paradigm has changed, I’m referring to a combination of factors. There are no more solid, safe investments paying any kind of decent yield that most retirees could possibly live on comfortably. Re-read that if you have to. Investors are being forced to take on more risk for yield. Some are doing it usingan income strategy, some are not.

CD rates are not just uselessly low, they’re practically insulting. Bonds were once considered some of the safest investments one could make. But now they pay next to nothing and come with all sorts of risk: think Greece, Ireland, or even Detroit as the most recent example.   

….read the 5 point test you now need to apply each stock, bond, ETF, mutual fund HERE