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It Pays to Switch Brokers

Kimberly Lankford

My broker moved from a low-cost brokerage to a full-service firm. I make about three trades per year. Would I be better off transferring to a discount broker?



My broker moved from a low-cost brokerage to a full-service firm. He recommends that I pay $1,500 a year for unlimited "free" trading at his new firm. I make about three trades per year, and I initiate most of them. Would I be better off transferring to a discount broker?

"Free" trading is a great deal -- for your broker. He's describing an account that levies fees based on your total assets. Instead of paying for each trade, you pay a percentage (generally 1.25% to 2.5%) of the assets you've placed with the broker. Firms use asset-based fees to minimize accusations of "churning" -- encouraging excessive trading in a client's account to earn commissions.

Unfortunately, that solution begets its own problems. NASD, the brokerage industry's self-regulatory body, has accused one firm, Raymond James & Associates, of improperly pushing clients into asset-based fee accounts when they clearly would have been better off paying for services via the traditional commission route.

In your case, the numbers speak for themselves. Move to any decent discount broker and your three annual trades will cost between $20 and $30. Because you apparently don't rely on your broker's recommendations, go with a discounter.

For more information about discount brokers, see Which Online Broker is Right for You?

Got a question? Ask Kim at askkim@kiplinger.com.




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