Is your Broker Worth the Expense? (Part 2)

In my last blog, I introduced Part 1 of “Is your Broker Worth the Expense?”. I encouraged you to take some time and determine what an acceptable rate of return is for you and your portfolio.

Today, I would like to take a quick look at some of the ways brokers charge you.

For higher net worth investors, those with a minimum of one million dollars, brokers quite often suggest a “Managed Account”( http://www.investopedia.com/terms/m/managedaccount.asp) In a managed account, your money is essentially given to an outside, professional money manager. My experience with these types of accounts is that you can be charged anywhere from 2% to 5% of your total sum invested. Your broker in the “Managed Account” scenario serves as a middle person, and gets a percentage of the fee. Hopefully, he/she at least understands the methodology behind the money manager’s investing process, and matches it with your goals because giving away your money takes no real expertise.

A wrap account, (http://www.investopedia.com/ask/answers/102.asp), is another popular way for a broker to charge. Quite often the broker chooses your investments in this account, and you pay 1-2.5% for unlimited transaction costs. In effect, the broker has effectively annuitized his/her business with the wrap account approach-that is they are paid quarterly regardless of performance and/or the number of performed trades. When an individual is paid by commissions and/or fees, a guaranteed income stream is good for them; my hope is that the wrap account is most importantly good for you!

Finally, a transactional fee (http://financialdictionary.thefreedictionary.com) Transaction+Fee is when your broker charges you a commission for each and every trade that is performed. Transactional fees were the most common payment for many years in the brokerage world. Quite often today transactional fees are still the most cost effective means of payment for individuals who need help investing.

If you are not sure which method is best for you, go to my website, www.TheDeGeorgeAgency.com, and let’s get a conversation started and/or become a follower of my blog. 

The DeGeorge Agency is a “Family Helping Families.”