Calling all investors: Are you still using a full-service stockbroker, whose firm offers stock research and investment advice? Or have you switched to a discounter, who offers no advice but executes your trades for less -- much less?
The argument for sticking with a full-service broker is getting harder to make. Brokerage commissions rose an average of 20 percent over the past six years, reports Mark Coler of Mercer Inc., and are increasing anywhere from 3 percent to 10 percent this year.
Furthermore, some firms are nickeling and diming you for extra charges. For example, you might be hit for $50 to $60 a year if your account isn't very active. That amounts to a "get lost" fee. If you're not making enough money for your stockbroker, the firm doesn't want you anymore.
Neophyte investors are often advised to start with full-service stockbrokers. In my view, that's sending the sheep into the wolf pen. Tyros have no way of judging the soundness of the advice they're getting. They belong in mutual funds.
The proper customer for a full-service broker is an experienced investor who knows the difference between brains and bull. But if you're that smart, why do you need a stockbroker at all? Pick your own stocks and execute your orders through a discount broker instead. Or use a full-service to suggest stocks you might not have thought of, and use a discounter for the ideas that are all yours.
With discounters, there are two ways to travel -- what one might call "business class" and "coach."
The business class are the Big Three -- Charles Schwab & Co., Fidelity Investments and Quick & Reilly. They're almost like full-service brokers -- offering cash-management accounts, systems for checking on stock prices and a wide variety of investment products. All that's missing is investment advice (which, judging from the stock-picking record of many brokers, is probably just as well).
The Big Three's commissions rose less than 10 percent over the past six years, Coler reports. Schwab and Fidelity have reported no increases for 1990. Quick & Reilly plans an 8 percent increase this year, but Coler says that will still leave them a bit below Schwab and Fidelity. On average, the Big Three are 55 percent cheaper than full-service firms (although, on some trades, they may be only 20 percent to 30 percent cheaper). At the many banks that offer discount-brokerage services, commissions average around 57 percent less.
The "coach" class covers the deep discounters -- beloved of all dedicated traders and serious investors. You get a few investor services. But the real attraction is rock-bottom commissions on stocks, bonds and options. For certain trades, some of the discounters charge slightly less than they did six years ago, according to Coler, whose firm does annual surveys of brokerage commissions. The 30 deepest discounters average around 73 percent cheaper than the full-service firms and 41 percent cheaper than the Big Three.
Each discounter has a different pricing schedule. Some are cheaper for large volume trades, others are cheaper for high-dollar trades. To find the 30 cheapest firms for 25 typical types of trades, plus the names and addresses of 85 discounters and price-comparisons of bank discount services, send for Mark Coler's The Discount Brokerage Survey, $29.95 from Mercer Inc., 80 Fifth Ave., Suite 800, New York, N.Y. 10011.