This is not investment advice. The information provided is for educational and informational purposes only and does not constitute a recommendation to buy or sell any financial product.
A full-service brokerage is a broker that combines trade execution with research, advice, and personal service under one roof. The brokerage employs analysts, advisors, and relationship managers, and the brokerage charges a higher commission for the bundled service. The model has been under pressure from discount brokers, robo-advisors, and online platforms, but the model is still relevant for traders who want guidance and a personal relationship.
The main advantages
The first advantage is the research. A full-service brokerage publishes analyst reports on thousands of stocks, and the reports include the financial models, the valuation, the rating, and the target price. The research is available to all clients, and the research is often more in-depth than what is available from a discount broker.
The second advantage is the advice. A full-service brokerage assigns an advisor to the client, and the advisor helps the client with the trading decisions, the asset allocation, and the portfolio rebalancing. The advisor knows the client's goals, the client's risk tolerance, and the client's tax situation, and the advisor tailors the advice to the client.
The third advantage is the personal service. A full-service brokerage offers a relationship manager who is available by phone, by email, or in person. The relationship manager helps the client with account opening, with funding, with withdrawals, and with any issue that arises.
The fourth advantage is the product range. A full-service brokerage offers a wide range of products, including stocks, bonds, options, futures, mutual funds, ETFs, and alternative investments. The brokerage can serve as a one-stop shop for the trader's investment needs.
The main drawbacks
The first drawback is the cost. A full-service brokerage charges a higher commission per trade, and the brokerage may charge an asset-based fee of 0.5 percent to 1.5 percent per year. The total cost can be significant, and the cost can erode the returns over time, especially for active traders.
The second drawback is the potential conflict of interest. The advisor may be incentivised to push the products that pay the highest commission, and the advisor may be incentivised to trade more often than necessary. The trader should ask the advisor about the compensation, and the trader should monitor the trading activity for excessive trading.
The third drawback is the slower execution. The full-service brokerage routes the order through a desk, and the desk may take a few seconds longer than an online platform. The delay is not material for long-term investors, and the delay is material for short-term traders.
The fourth drawback is the limited control. The trader who uses a full-service brokerage delegates the execution to the advisor or the desk, and the trader may not have direct control over the order routing, the order type, or the execution price. The trader who wants direct control should use a discount broker with a self-directed platform.
Who should use a full-service brokerage
A full-service brokerage is a good fit for traders with a large account, who want a personal advisor, and who value the research and the personal service. The brokerage is also a good fit for traders who are new to the markets, and for traders who have a complex financial situation that requires tailored advice.
A full-service brokerage is not a good fit for traders with a small account, for traders who are self-directed, or for traders who are sensitive to the fees. The trader who does not use the research or the advice should not pay for the service, and the trader should consider a discount broker or a robo-advisor.
How to choose a full-service brokerage
The first check is the research quality. The brokerage should publish research on a wide range of stocks, and the research should be in-depth. The trader can test the research by looking at a few reports, and the trader can compare the research with the research from other brokerages.
The second check is the advisor's track record. The advisor should have a track record of giving good advice, and the advisor should have a low turnover in the recommended portfolios. The trader can ask the advisor for references, and the trader can check the advisor's credentials.
The third check is the total cost. The brokerage should publish the commission schedule, the asset-based fee, and the platform fee. The trader should calculate the total cost for a representative trading pattern, and the trader should compare the total cost with the cost of a discount broker.
Common questions about full-service brokerages
Are full-service brokerages worth the cost? For traders who use the research and the advice, yes. The advice can save the trader from costly mistakes, and the advice can improve the returns. For traders who do not use the advice, no.
Can I switch from a discount broker to a full-service brokerage? Yes, and the trader can also hold accounts at multiple brokers. The trader should compare the total cost and the total service before making the switch, and the trader should keep the discount broker for the trades where the cost matters.
What is the minimum account size for a full-service brokerage? The minimum varies by brokerage. Some full-service brokerages require €100,000 or more, and some accept smaller accounts with a higher commission. The trader should check the minimum before opening the account.
Related resources
Where to start
If you are evaluating full-service brokerages, the most useful first step is to identify the services you actually need (research, advice, personal service), and to compare the total cost across three to five brokerages. Our broker comparison lists the full-service brokerages and the fee schedules, which together tell you what the brokerage offers before you open the account.