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How to Choose a Brokerage
Choosing the right brokerage is one of the first decisions a new investor makes. The best choice depends on your investing style, account needs, and the features most important to you. Modern online brokerages have made investing accessible with low or no fees, but they differ in tools, research, and account options.
Key Factors to Consider
Fees and Commissions
Most major brokerages now offer $0 commission stock and ETF trades. Look beyond trading fees to account maintenance fees, transfer fees, options contract fees, and margin rates. Even small recurring fees can add up over time.
Account Minimums
Many brokerages require no minimum deposit to open an account, making them ideal for beginners starting with small amounts. Some managed accounts may require higher minimums.
Fractional Shares
Fractional share investing lets you buy portions of expensive stocks with any dollar amount. This feature is essential for beginners who want to diversify without needing thousands of dollars.
Research and Education
Quality research tools, stock screeners, analyst reports, and educational content can make a significant difference, especially for newer investors learning the fundamentals.
Brokerage Types Compared
| Type | Best For | Typical Features | Examples |
|---|---|---|---|
| Full-Service | High-net-worth investors wanting personal advice | Dedicated advisor, financial planning, higher fees | Morgan Stanley, Merrill Lynch |
| Discount Online | Self-directed investors of all levels | Low/no commissions, research tools, wide selection | Fidelity, Schwab, Vanguard |
| Mobile-First | Beginners and younger investors | Simple interface, fractional shares, social features | Robinhood, Webull, SoFi |
| Robo-Advisor | Hands-off investors wanting automated management | Automatic portfolio management, rebalancing | Betterment, Wealthfront |
Account Types Available at Brokerages
| Account Type | Tax Treatment | Best For |
|---|---|---|
| Individual Taxable | Capital gains and dividends taxed annually | General investing, no contribution limits |
| Traditional IRA | Tax-deductible contributions, taxed at withdrawal | Retirement savings with current-year tax deduction |
| Roth IRA | After-tax contributions, tax-free withdrawals | Retirement savings with tax-free growth |
| Joint Account | Same as individual, shared ownership | Couples investing together |
| Custodial (UGMA/UTMA) | Child's tax rate on gains | Investing on behalf of minors |
What to Look for as a Beginner
- No account minimum so you can start with any amount
- Commission-free trades for stocks and ETFs
- Fractional shares to invest with small amounts in expensive stocks
- Educational resources and beginner-friendly interface
- SIPC protection (Securities Investor Protection Corporation)
- Responsive customer support via phone, chat, or in-person
Frequently Asked Questions
Yes, if the brokerage is a member of SIPC (Securities Investor Protection Corporation). SIPC protects customer securities and cash up to $500,000 (including a $250,000 limit for cash) if a brokerage fails. Many brokerages also carry additional insurance through Lloyd's of London for even higher coverage. SIPC does not protect against market losses. Always verify your brokerage is SIPC-registered at sipc.org before opening an account.
Yes, there is no limit on the number of brokerage accounts you can have. Some investors use different brokerages for different purposes, such as one for long-term investing with excellent research tools and another for active trading with advanced order types. The only limitation is that IRA contribution limits apply across all your IRA accounts combined, not per brokerage. Keep in mind that having multiple accounts means more tax documents and portfolio tracking complexity.
Brokerages generate revenue through several sources beyond commissions: interest on uninvested cash balances (often the largest source), payment for order flow (selling order data to market makers), margin lending interest, premium subscription tiers, options contract fees, account transfer fees, and fees on managed accounts or robo-advisor services. Interest earned on client cash balances alone can generate billions in revenue for large brokerages.
A brokerage gives you full control to buy and sell investments yourself, while a robo-advisor automatically manages your portfolio based on your goals and risk tolerance. With a brokerage, you choose every investment and make all decisions. A robo-advisor selects a diversified portfolio of ETFs, automatically rebalances, and may offer tax-loss harvesting. Robo-advisors typically charge 0.25-0.50% annually for management. Many brokerages now offer both self-directed accounts and their own robo-advisor service, so you do not necessarily have to choose one or the other.
Most brokerages offer an ACAT (Automated Customer Account Transfer) process that moves your investments in-kind (without selling) from one brokerage to another. The new brokerage usually initiates the transfer and handles the paperwork. The process typically takes 5-8 business days. Some brokerages charge an outgoing transfer fee ($50-75), but many receiving brokerages will reimburse this fee to attract new customers. IRA transfers can be done as trustee-to-trustee transfers to avoid any tax implications.
