Full-service Brokers vs Discount Brokers
For any transaction, you want to make you will need a stockbroker’s assistance and intervention. Having a broker is beneficial as you do not have to worry about conducting any transaction yourself and leave it on your broker. Moreover, you need to understand what are the types of brokers in detail before choosing the best stock broker for your stock exchange transactions. The broker acts as an agent between the market and the market participants. Additionally, brokers are the registered members of stock exchanges that are regulated by the SEBI.
There are two main types of stock brokers in the stock market in India. They are:
* Full-service Broker
* Discount Broker
Full-service Brokers
The type of brokers that provides simply everything but at a higher cost. They provide facilities like research for trading, advisory tips, and recommendations for investing in IPOs, Mutual funds, currencies, commodities, etc. Moreover, they operate from many branches across the country and also provide walk-in query solutions if you want to go and visit for queries. Additionally, you have to note what features each full-service broker provides.
They offer other facilities like customized support according to individual requirements, advisory, client-dedicated relationship, wealth management services, financial planning services, and much more. As the full-service broker provides a plethora of services, they charge a higher commission as compared to a discount broker. The most important part of this commission is advisory as it is very costly.
Some popular Full-service brokers are:
* Edelweiss Broking.
* Angel Broking.
* Motilal Oswal.
* ICICI Direct.
* Sharekhan etc.
Discount Brokers
The type of brokers that provides brokering services at a lower and cheaper cost. The technology-driven brokers that have low operating costs hence charge less. Moreover, they provide just the platform for trading to the market participants and no advisory facilities are provided. Additionally, you are getting a trading facility at 60% less brokerage charged as compared to full-service brokers. They also provide online trading platforms and Software that are free of cost for their customers.
Pros and Cons of Full-Service Brokers
Pros:
* Provides Research: A full-service broker provides access to high-quality research for its customers. Moreover, this research can help for better decision-making and understanding. They provide in-depth research and analysis of the companies in a way that will make your decision more powerful and beneficial. Analysis of particular companies is provided to understand each company in a detailed manner.
* Offers guidance and Advice: Full-service broker’s biggest advantage is the attention and focus you get from your account representative. They provide you guidance and recommendations regarding different stocks and funds. You can convey your goals and they will help you reach there in a suitable manner.
* Helps to achieve investment objectives: A good account representative will always ask you your goals and provide you suggestions according to the requirements.
Cons:
* Salespeople: As we all know no matter how good a broker or account representative treats you; they are salespeople. Yes, they care about your finances but above that, they want to generate fees and commissions from you. Always understand what are they recommending and then only give a green signal. If you don’t see a huge profit from the recommended transaction you can deny it for good.
* High Cost: As we have already mentioned that full-service brokers charge a lot higher brokerage than discount brokers. Moreover, you should think if you need additional services or you just want a platform for trade. There is a high minimum balance required and also a high opening cost for full-service brokers.
* Churning: Churning is a bad activity that some brokers might engage in. Churning is when the broker does a lot of buying and selling of stocks with the intention of earning more and more commissions. It is wrong as they might put your money in the wrong stocks and just earn their commission. Churning is great for any broker but devastating for any investor so you should ask your broker if many activities are going on in your account. Moreover, a justification is better than getting yourself into a fraud like Churning.
Pros and Cons of Discount Brokers
Pros:
* Low Cost: The biggest advantage of having a discount broker is the lower cost of brokerage and other charges. Moreover, if you cannot afford to pay high costs for full-service brokers then Discount brokers are the best alternatives. Additionally, this is the primary benefit of discount brokers as they provide a platform that allows hassle-free trading.
* Unbiased Services: There is no misleading or fraud that can occur while using the services of a discount broker. Moreover, you are safe from frauds like churning as they do not offer any investment bits of advice.
* Flat Brokerage charges: The charges are the same for you either you are a big player or a small investor. Moreover, they offer flat brokerage charges for all clients whether you purchase 100 lots or a single lot.
Cons:
* No Advisory: Discount brokers don’t provide any advisory facilities or research reports. You just have information that is available for all and no additional benefit.
* No Portfolio Management Services: Discount brokers do not offer additional services like Portfolio Management Services that will be beneficial to the clients.
* No 3-in-one account: There is no availability of a 3-in-1 account facility for the clients of discount brokers. 3-in-one means Banking+ Demat+ Trading accounts all in one. You will not be provided by this advance facility which is allowed for a full-service banking broker. Some of the full-service banking brokers include SBI Securities, ICICI direct a/c, etc.
Conclusion
After a detailed comparison of Full-service brokers and discount brokers in terms of their advantage and disadvantage, you will now have an idea of which one is best for you. The full-service broker provides a lot of facilities at a higher cost. On the other hand, discount brokers provide fewer facilities at a lower cost. Choose the one that is suitable as per your requirements and enjoy the benefit of having a stockbroker by your side.
Originally published at https://steemit.com on March 4, 2021.