Discount brokers grow, but don't suit everybody

Andrew Leckey

June 11, 1993|By Andrew Leckey | Andrew Leckey,Tribune Media Services

There are discounts, and then there are discounts.

Thirteen percent of the nation's brokerage commissions today go to discount brokers, who handle transactions but don't offer investment advice, as full-service brokers do.

The number of discount firms has grown to more than 100, as sophisticated investors increasingly choose to go it alone.

Keep in mind, however, that discount brokers aren't best for everyone, since many investors need advice about financial goals and a bit of hand-holding as well.

In addition, not all discounters are alike; their commissions, local offices, account features and quality of service vary considerably. And that makes it as important to do homework on choosing a broker as on selecting investments.

"We see a widening gap between commissions of the deep-discount brokerage firms, the 'big three' discount firms and the full-service brokers," says Mark Coler, publisher of the Mercer Discount Brokerage Directory and the Mercer Discount Brokerage Survey (available for $29.95 separately or $49.95 together at 80 5th Ave., New York, N.Y. 10011).

"Deep discounters have not only held the line on commission costs but have reduced them to the lowest point since 1983."

Check out the type of trades you'll usually make.

For example, the transaction commission on 100 shares of a $50 stock at the "big three" discount firms would be $49 at New York-based Quick & Reilly, $54 at Boston-based Fidelity Brokerage Services and $55 at San Francisco-based Charles Schwab & Co.

That compares with $23 at K. Aufhauser & Co. of New York and $40 at Olde Discount of Detroit.

The price tag rises to $105 at full-service Merrill Lynch & Co.

Most brokerage trades are done over the telephone. However, while the others noted here also feature walk-in offices around the country, a firm such as 11-year-old K. Aufhauser has just one office.

"Some people are more comfortable with a big-name brokerage firm, even though there's no indication trade executions or services are really any better," adds Coler. "It's like choosing a brand-name product rather than a generic."

Deep discounters are members of the Securities Investor Protection Corp., so accounts are insured if the brokerage goes under. But you'll often find shorter hours and fewer services (they may not offer check-writing privileges, for example).

"When choosing a discount broker, look at financial strength of the firm in terms of how much capital it has, how long it's been in business and its commission structure," says Thomas Quick, president of 90-office Quick & Reilly, which in 1975 was the first NYSE member to offer discounts to the public.

If you're interested in a longtime relationship and not a one-shot transaction, obtain all the information about the firm and its features.

"Investors like the variety of products that we consolidate onto one statement, as well as our 24-hour touch-tone trading service," says Thomas Taggart, spokesman for 184-office Schwab, whose no-fee IRA has been a popular product.

"In addition, our Mutual Fund Marketplace brings together more than 600 mutual funds from 100 mutual fund families, most requiring a minimal $29 fee and about 90 of them requiring no transaction fee at all."

L The "big three" contend going with a known firm makes sense.

"At Fidelity, our reputation and size make us much more than a 'standard' discount firm, and our 24-hour service lets you talk with a registered representative seven days a week," says Thomas Littauer, president of client management services for 75-office Fidelity.

"Besides 180-plus Fidelity mutual funds," he says, "we offer more than 1,000 funds from 90 fund families and several newsletters with excellent information and education."

Schwab and Fidelity touch-tone services let you punch in orders on your phone to receive an extra 10 percent discount.

"Deep discount is often used as a reason for not offering extra services, such as no-fee cash management, no-annual-fee IRAs and money markets with check writing," says Randal Mudge, a director with 200-office Olde. He says his firm offers those features while helping investors save as much as 90 percent on some types of trades vs. full-service firms.

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