What’s with all these do-it-yourself stock trading companies?
First they sold the idea that you don’t need a broker. You don’t need his fees, his churn, his sleaziness. If he’s so good at calling stocks, why’s he still working? they asked.
Now, these same companies litter the airwaves with advertisements, ALL of which tout how much great advice you can get from them. I thought we were supposed to be finished with following somebody else’s advice! Besides, if all these advisers were so good at calling stocks, why’re they still working???
They’re trying to have it both ways, right? Or did I miss something?
Yeah they are and that is a good thing. Financial services firms need to attract and maintain their customers. They can’t be a training ground for people that think they need no help. When the market turns against them, or they just need basic planning help they will bolt to a firm that offers some amount of advice.
I think the misunderstanding you have is the idea that the advisers are choosing stocks or even mutual funds for the clients. There are very few firms left who are out there giving stock tips. They are mostly giving asset allocation advice with guidance as to how much to have in small vs. large cap stocks, bonds etc. From there they may offer some screening tools to choose mutual funds to fill that allocation. Places like Schwab also offer the option of letting you choose to have them manage that allocation for a fee.
They differ from traditional advisers in accomodating do-it-yourselfers and people who need light advice without turning over the portfolio to a high cost adviser. Most of these places have raised various fees, especially on lower balance customers and are attempting to attract and maintain the higher balance, higher profit customer.
That. I use AmeriTrade and only talked to one of their advisors once (he called me when I opened my account.) I do all my own research and trade decisions (AT’s research tools are very good.) But the guy is there if I need an outside opinion.
I also use Vanguard for my index funds. I don’t think I’ve ever spoken to a human there, and they’ve never, ever bugged me. And they are a regular mutual fund company with no particular specialized online market. Go fig.
You missed everything.
Pricewaterhousecooper is an accounting firm, not a brokerage.
I’ll assume you’re referring to TD Ameritrade which was formed from a merger between TD Waterhouse and Ameritrade.
I’ve worked for some of these companies and I’m very familiar with the business model.
True, online brokers originally were set up to allow people to be able to buy stocks at a much lower commission than you would pay through a traditional brokerage firm. This business model worked during the dotcom years. Log on and buy 100 shares of Cisco and then sell them for a $20 per share profit 2 days later.
The current group of online brokerage firms (TD Ameritrade, Schwab, Fidelity, E-trade) now falls in a middle ground between the traditional firm which tends to manage your account for you and the broker is compensated by either the size of your account or by the products he/she sells you and the cut rate firms which only offer a trading platform and no research.
The major online firms do offer advice and research, but it isn’t the sort of “Buy gold and sell your IBM” type advice. They’ll have people who can help you interpret what the research reports on various stocks are saying, can show you how different portfolio allocations have performed over the years, and can help show you how to do your own research. The person helping you won’t make $100 more if they sell you XXX fund as opposed to YYY fund. They won’t be calling you at the end of the month if they haven’t generated enough commission for that month and need to make some sales to meet the monthly quota.