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How to Open Your First Brokerage Account

By U.S. News & World Report

A brokerage firm is one of the first places investors consider for buying and selling stocks, bonds, mutual or exchange-traded funds and other investments.

Just like ice cream, brokerage firms can vary greatly in quality, options and price, from the plain vanilla variety — such as a discount brokerage for do-it-yourself investors — to a complicated sundae with an assortment of toppings — such as a full-service brokerage with a broker to advise you. Brokers are individuals or firms who charge a fee or commission for executing trades on behalf of their investors. An investor typically opens an account with a brokerage and then receives assistance from a broker who works there.

[See: Avoid These 8 Rookie Investing Mistakes.]

Discount or online brokerages for do-it-yourself investors include Charles Schwab Corp., (ticker: SCHW) Fidelity Investments, Scottrade Inc., TD Ameritrade ( AMTD) or E-Trade Financial Corp. ( ETFC) Examples of full-service brokers include Raymond James Financial ( RJF) or Edward Jones.

Some online platforms, such as E-Trade, allow investors to place trades directly with a brokerage for a fraction of the traditional cost or nothing, in the case of Robinhood, a commission-free trading firm in Palo Alto, California, that allows investors to sign up for its app and trade for free without a minimum deposit.

Choosing a brokerage. Before opening an account, research different brokerage companies to understand each firm’s trading platforms, says Thomas Walsh, a portfolio manager with Palisades Hudson Financial Group in Atlanta. Each brokerage offers slightly different funds and some will have more commission-free ETFs or certain types of securities.

If you plan on hiring a financial advisor, check out the U.S. News Advisor Finder for profiles of advisors in hundreds of cities.

Then compare each brokerage’s trading commissions, account maintenance and closure fees, investment options and accessibility. “Decide on other details, like if you prefer access to a physical branch location or if online access will suffice,” Walsh says. “Make sure that the brokerage firm offers access to the types of investments you would like to purchase because not all do.”

Setting up an account. The process for opening a brokerage account is similar to setting up a bank account, with one important distinction, says Jeremy Hyndman, an investment fraud lawyer at Investor Defense Law in Los Angeles.

For a new brokerage account, you’ll be asked to fill out new account forms that will ask questions about your risk tolerance, investment objectives, time horizon and the extent of your financial knowledge to build an investor profile. Most applications typically require you to also provide your contact information, Social Security or EIN number, marital status, mother’s maiden name, a financial statement listing information for assets or cash you may want to transfer, and sometimes details from your driver’s license.

Many firms will have you rank your investing preferences — for instance, preservation of capital, income, growth or speculation — depending on whether you are a conservative, moderate or aggressive investor.

“Any recommendations the brokerage firm makes should be suitable for the investor based on this profile,” Hyndman says.

That’s an important distinction because a suitability standard isn’t the same as a fiduciary standard. Registered investment advisors, also called RIAs, who may also be broker-dealers in some hybrid formats, must disclose any conflicts of interest and place their clients’ best interests first, ahead of the advisor’s own compensation.

[See: 9 Psychological Biases That Hurt Investors.]

Broker-dealers, on the other hand, are only required to offer investments suitable for their investors, according to the Financial Industry Regulatory Authority. That means broker-dealers can put their interests above their client’s and make recommendations based on commissions. In other words, broker-dealers hope to make money for themselves and their firm, and not you, the investor. Think of them as salespeople who are compensated per transaction whether you make or lose money.

After opening an account, you must fund it based on any minimum requirements and determine your investment strategy according to your age, risk tolerance and cash needs.

“Bond investments will typically be safer than equities, while mutual funds and ETFs typically offer greater diversification than individual stocks,” Walsh says. He also recommends rebalancing your portfolio periodically according to your target asset allocation by selling inflated assets and buying those that are cheap. “The most important thing is not to let day-to-day fluctuations in the stock market affect your long-term investment plan.”

Fees, commissions and account minimums. Costs vary widely by firm, and there may be additional fees to consider besides those for making trades.

“Investors need to make sure they fully understand the fee structure before opening a brokerage account,” says Stephen Rhodes, managing principal at Signify Wealth in St. Louis.

Trading fees, for instance, can vary depending on whether the investment is a stock, mutual fund, bond or ETF. Buying and selling publicly traded stock ranges from $5 at discount brokerages to $80 at full-service firms, Hyndman says. The fees for variable annuities and other complex financial products can equal 8 percent to 12 percent of their purchase price after commissions and other charges.

Trading fees may also be a standard rate no matter how many shares of a particular investment you trade.

“For example, on equity trades when all conditions are met, Charles Schwab will charge the investor $4.95 per equity trade,” Rhodes says. “So if the investor wants to buy one share of Apple ( AAPL) stock or 1,000, they would pay a flat fee to Charles Schwab of $4.95.” If the investor later chose to sell those same shares of Apple stock, they would also be charged the $4.95 fee again, he says.

Other common fees include those for withdrawing, transferring or wiring money in or out of the brokerage account. There may also be an annual fee to maintain the account.

“Although many of the top brokerage firms have eliminated this fee, it is still important to confirm that this is the case, prior to opening the account,” Rhodes says.

[See: 10 Long-Term Investing Strategies That Work.]

Some brokerages even charge fees for inactivity. Many firms also reduce fees for retirement accounts or those that meet a minimum threshold for trading activity, which varies by firm, Hyndman says. To keep tabs on fees, investors should check their statements monthly and question any charges they don’t understand.

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How to Open Your First Brokerage Account originally appeared on usnews.com

Don’t Settle for Student Loans to Pay for Online Education

By WTOP Staff
Online college programs are becoming a more popular choice for prospective students, with one study finding that more than 6 million students enrolled in at least one online course in fall 2015. The popularity of these courses can be attributed in part to their flexibility with working adults' schedules, students' ability to progress more quickly through online programs and, oftentimes, cheaper tuition. [See 10 low-cost online bachelor's programs for out-of-state students.]Online degrees can be beneficial to many college students, but some studies have shown online learners complete their programs at lower rates than students at traditional brick-and-mortar campuses. Individuals with student loans but no degree comprise two-thirds of defaulted borrowers. Though these numbers are not encouraging, just like for traditional programs, there are ways to reduce how much you'll need to borrow for an online program to ensure you won't become one of these statistics. Don't just settle on borrowing student loans to cover the whole cost of your program and living expenses. Instead, start thinking about how to cut costs and cover your balance in different ways, such as the following. -- Grants and scholarships: Even though you are taking an online course, you can still apply and receive grants and scholarships. But your first step should be to complete the Free Application for Federal Student Aid, commonly referred to as the FAFSA, which will allow you to receive a Pell Grant if your expected family contribution is low enough. The EFC criteria and award amounts are adjusted annually, but the 2017-2018 academic year awards range from $606 to $5,920, which could significantly lower the amount you borrow annually. Your next step is to apply for scholarships. You can start by checking online scholarship search engines, such as the Salt Scholarship Search, College Board's BigFuture and Peterson's. But don't forget to take advantage of local organizations and your school's financial aid office. Both may offer scholarships that you can't find with a national scholarship search. [Review these 10 sites to kick off your scholarship search.]For instance, organizations like the Elks Club, Knights of Columbus or the Rotary Club typically offer scholarships annually to local students. Just because you're going to school online doesn't mean you're ineligible. Visit your local library for scholarship listings, and ask around town. You might be surprised how many local organizations offer scholarships. While these scholarships typically aren't large, every little bit counts. Each dollar you receive in a scholarship is a dollar you don't have to borrow and pay interest on. -- Work-study: Another option for online students may be work-study awards. Not all students enrolled in online programs are eligible, but students at some schools -- including, for example, SUNY Empire State College and Liberty University -- are. Work-study awards are not given upfront like scholarships and grants. In most cases, they are an offer to earn up to the awarded amount if you secure an eligible work-study job. While there is a misconception that all work-study jobs must be on campus, students can work for off-campus, nonprofit or public employers as long as the work is in the public's interest. You may be able to work for a for-profit employer if the job is relevant to your course of study. No matter who the outside employer is, it will need to have an established agreement with your college for you to receive work-study funds. Remember, to be eligible for federal financial aid, you must be enrolled and pursuing a degree or certificate. If you're not working toward a credential, Pell Grants and work-study won't be option, but you may still be able to take advantage of private scholarships -- just be sure to read the eligibility criteria carefully. [Explore what to know about financial aid in online programs.]-- Pay as you go: One of the great benefits to enrolling online is the flexible schedule, which can allow you to complete your college coursework around your responsibilities. But prospective students often overlook using their part- or full-time job earnings as an option for paying for college. Almost 80 percent of college students in 2015 worked at least part time while attending classes, according to the National Center for Education Statistics. By budgeting and thinking strategically about your college costs, you can likely reduce your dependence on student loans by paying a portion out of pocket. Many -- but not all -- online programs are less expensive than traditional programs and often have shorter payment periods. Six, eight or 10 weeks are common course durations. Because of the frequency of payments in an online setting, you may be well-placed to pay as you go and possibly avoid borrowing altogether. Attending college online and avoiding student loans may be challenging, but if you are willing to put in the effort, you can limit the amount you need to borrow. More from U.S. News Q&A: Understanding Student Loan Discharge Eligibility Student Loan Refinancing Isn't Right for All Borrowers
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