the broken typewriter

This one is for the people that I am probably never going to work with.

I got the idea for this column when a fellow came into my office, asking me if I could do some things on his investment account. Although I could do what he requested, my response was “You don’t want me for that.”

For the purposes of this column there are two scenarios where you don’t want me for that, and both will lead to me making the same recommendation: check out the discount brokers.

In the past discount brokers have had a bad reputation for things like horribly long times waiting for the client services people to answer the phone, clunky technology, poor transparency, and shenanigans with under-the-table fees being charged, both directly and indirectly.

But technology has come a long way and nowadays, although there will still be some unhappy clients, some people are quite pleased with their discount broker.

The first scenario where you might want to consider a discount broker is if you have already made up your mind on what you want to do, and you are determined to proceed. This is the scenario that prompted this column. The fellow that came in to see me already thought he knew what stocks he wanted to own; he just needed someone to act as an order-taker.

Folks, if all you are looking for is someone to execute your trades, there is no need to pay my expensive rate. I can promise you there are people out there that will do it far cheaper than I will. There is no need to pay a full-service price for simple trade processing.

The second scenario is when the size of the account does not justify the costs involved. If you are just starting out then potentially the costs are going to be a substantial percentage of the account size. It might make sense to just get started with a diversified, low-cost investment to get you going.  

Either way, from time to time I suggest to people that they may be better served with a discount brokerage. Usually the next question is, which discount brokerage should I talk with?

There are quite a few options. To find the right one for you, start with a google search of the online providers. Check out the reviews to see what other users are saying.

What you will want to look at is not just the cost of the trades, but what the platform offers and is that consistent with what you are looking for. Do you want sophisticated analytical tools? Do you plan on doing a lot of trading? What are the costs to transfer your account out when you are done? There are lots of people that will take your business, you want to find the right one for you.

You can also talk to your local bank branch and see what they have to offer. You will almost certainly still be dealing with a call center or online platform, but there may be some benefits like reduced bank service charges if you also have an online investment account, or integration with your banking app.

Discount brokers can be a legitimate option. Now, having said that…

For 30 years now I have watched people turn $5000 into $2000 because of their buddy’s hot stock tip. Or because of what the guys in the coffee shop said was going to happen. Or because they saw something on social media that seemed like a good opportunity.

Yes, you can choose to buy stock online. Just as I could choose to go down a black diamond run on my snowboard.

To be clear, I am a raw beginner at snowboarding. I have difficulty doing the bunny run without falling over. Black diamond runs are the steepest, most challenging, most dangerous runs on the mountain.

But, in theory, I could navigate a black diamond run, enjoy the thrills and arrive safely. Just like, in theory, you can buy stock online and make a lot of money.

Like black diamond runs, discount brokerages can be great if you know what you are doing, and dangerous if you don’t. So be sure that you know what you are doing.

I am not trying to be adversarial here. Regular people absolutely can learn about investing, and make good decisions with their money. But you are very unlikely to pull that off just by watching a few YouTube videos. If you want to make a commitment to learning about all the stuff that you need to know, then go for it. If you aren’t going to make that commitment, then best to be self-aware.

Brad Brain. CFP, R.F.P., CIM, TEP is a Certified Financial Planner in Fort St John, BC. This material is prepared for general circulation and may not reflect your individual financial circumstances. Brad can be reached at www.bradbrainfinancial.com