Full Service Brokers Key Terms

Get to know more about full service brokers with these keywords

By M. Krasniak, Freelance Writer/Editor

If you already have a busy enough life without worrying about investing, you may want to consider using a full-service broker. A full-service broker provides many more services than simple trade execution. In addition to helping you trade stocks, a full-service broker can help conduct equity research and assist in financial planning. You may also get access to upcoming IPOs. Be aware, however, of high commissions. Some brokers also encourage churning, which usually hurts your returns.

Financial planning

Financial planning is more than just picking a few stocks. It is an all-encompassing strategy for managing all of your finances, including debts and investments. A full-service broker has the right tools and resources to help you develop a sound financial plan.
Try: This article from Personal Finance Tips provides a comprehensive explanation of financial planning.

Equity research

Picking the right stock is very difficult, but full-service brokers conduct detailed equity research before recommending stocks to purchase. Sound equity research is very time consuming, so most people are unable to do it properly. A full-service broker spends a great deal of time pursuing equity research, which makes them very capable of recommending good stocks for purchase.
Try: Check out this piece from Investopedia to get an understanding of the current state of equity research.

IPO

Usually, small investors are not able to purchase stocks in an IPO. An IPO, or initial public offering, is the first time a company's shares are offered to the public. Usually, the IPO is restricted to large investors. If you are using a full-service broker, however, you may be able to get in on some IPOs.
Try: IPOs are clearly explained on this wiseGEEK page.

Commission

Since full-service brokers provide more services than brokers than only execute trades, they charge higher commissions. A commission is a fee charged for every transaction conducted for the client by the broker. It pays to shop around, because not all full-service brokers have the same commission structure.
Try: InvestorWords.com explains commissions in a very intuitive way.

Trade execution

Trade execution is the main service offered by every broker, but not every broker's service is the same. The broker has discretion over trade execution for your account. When you send an order to your broker, it is up to the broker how best to fill that order.
Try: You should look over this article from the Securities and Exchange Commission (SEC) to get a good idea of trade execution.

Churning

A possible pitfall of using a full-service broker is that your broker may engage in churning. Churning is excessive buying and selling in your account by your broker. It usually occurs because the broker suggests buying and selling various different stocks very frequently, which is rarely good for a client's returns.
Try: This article from Investor Glossary provides a good discussion of churning.