Where Should You Invest? With A Big Brokerage Firm

As an investor, you could also invest with a brokerage firm.

Why is it called a brokerage firm? Well, they act as brokers. Meaning, they are middlemen and women who sit between you (the investor) and the investments.

Brokerage firms can be big firms, such as Merrill Lynch, UBS, and Goldman Sachs, and they can also be smaller firms. Either way, they are more than happy to open an account for you, hold your money, and help you buy and sell investments. At these firms, you will probably have an investment advisor assigned to you. You can buy investments through her. Typically, you can buy almost anything you want. For example, want 100 shares of Google? No problem. Want to buy a Vanguard mutual fund? Usually not a problem (although some brokerage firms don’t offer all mutual funds). Want to buy some bonds? Again, no problem.

Sounds perfect, right?

And for many, this is a reasonable way to invest. With any option, there are some advantages and disadvantages.

The disadvantages with going through a brokerage firm are:

1. Fees. They are the middleman. They don’t get up each day and go to work for free. They do it to make money. And that’s where you come in. If you invest with them, you will pay them any number of fees and commissions, and these can add up.

2. Conflicts. You’d think the advice you get from your investment person at a brokerage firm would have to be in your best interest, right? Well, sadly, that’s not the case. Brokerage firms only need to provide you with advice that is “suitable,” but not necessarily in your best interest. So who’s
best interest could their advice be in? Who could it be? Uh, maybe the brokerage firm’s best interest? Bingo! So that’s definitely something to consider. Ideally, the financial advice you get would be entirely in your best interest – I mean, that just makes sense to me. If you are getting a recommendation, you don’t want to think in the back of your head, “Is she suggesting this because it will benefit me, or is she suggesting this because it will benefit her?”

You’d be in good company if you invested your money through a brokerage firm. They work with millions of clients and have trillions of dollars in assets. Just know how they work and what you’re getting into.

The proceeding blog post is an excerpt from Get Money Smart: Simple Lessons to Kickstart Your Financial Confidence & Grow Your Wealth, available now on Amazon.