Full-Service Broker: Overview, Pros and Cons, FAQ

What Is a Full-Service Broker?

A full-service broker is a licensed financial broker-dealer firm that provides a large variety of services to its clients, including research and advice, retirement planning, tax tips, and much more. Of course, this all comes at a price, as commissions at full-service brokerages are much higher than those at discount brokers.

Full-service brokers can provide expertise for people who don't have the time to stay up-to-date on complicated issues such as tax or estate planning; however, for those who just want to execute trades without the extra services, discount brokers are the way to go.

Key Takeaways

  • A full-service broker provides its clients with a wide range of financial services, research, and advice.
  • Additional services can include portfolio analysis and construction, estate planning, tax advice, access to IPO shares, access to foreign markets, and so on.
  • Although discount brokers will be less expensive, they often are aimed at simple execution services for self-directed investors and traders.
  • Full-service brokers are infamous for inflating fees in their client's portfolios.
  • Full-service brokers can be a good decision if you don't want to do your own investment research but still want to be active in the markets.

Understanding Full-Service Brokers

Full-service brokers offer customized support and interaction in facilitating trades, managing portfolios, financial planning, and wealth management services for clients. Clients are assigned to individual stockbrokers and/or financial advisors. They are the main point of contact at a full-service brokerage firm.

Clients of full-service brokerages appreciated the convenience of having a personal broker handle all their investment needs. It is a one-stop-shop for investment and financial management. Most full-service firms provide online access and trading platforms. Self-directed investors tend to take advantage of these offerings. These platforms are loaded with fundamental research, order execution, and technical analysis tools.

Full-service brokers provide clients with a wide variety of services, but it's important to check your statements and trades to make sure they aren't bumping up their fees by churning securities in your portfolio.

Advantages and Disadvantages of Full-Service Brokers

Full-service firms have large research departments with analysts that provide proprietary detailed reports and recommendations for clients. They also have investment banking divisions that may provide certain accredited investor clients access to special financial products such as initial public offerings (IPOs), senior notes, preferred stock, debt instruments, limited partnerships, and various exotic and alternative investment opportunities. This is one of the main advantages of full-service firms.

Full-service brokers often have their own in-house line of products like mutual funds, portfolio management, insurance, loan services, and exchange-traded funds (ETFs). All full-service brokerages provide physical office locations for clients to visit.

Probably the largest disadvantage of using these types of brokers is the price tag. Full-service brokers, like other management company types, charge for their services, and although the broker may offer a "bundle discount," generally you will be paying more no matter the amount discounted.

With the full-service type of relationship, a broker also has more products at their disposal that may directly benefit their brokerage. For example, a discount broker may not make any different amount of commission if they sell ETFA vs. ETFB. A full-service broker, however, could make significantly more commission by getting you to invest in ETFB due to their firm's relationship with the company that manages that ETF, subsequently steering you into that specific investment.

  • Deep understanding of products

  • Tax-advantaged strategic insights

  • Preferred access

  • Physical locations

  • Risk of transparency

  • Some firms will "churn" items in a portfolio

  • Much higher fees

  • Lack of autonomous decision-making

Stockbrokers vs. Financial Advisors

Stockbrokers are licensed professionals who manage client investments and administer financial advice to clients, and they are required to pass the Series 7, Series 63, and Series 65 exams to attain licensing. Brokers working at financial firms also need to be registered with the Financial Industry Regulatory Authority (FINRA). Licensed stockbrokers are expected to be fluent in stocks, bonds, and options.

It is important to distinguish between a stockbroker and a financial advisor. Stockbrokers are more geared towards providing securities products and transaction-based services, whereas financial advisors cover a broader range of services that include estate planning, financial planning and budgeting, insurance products, and even tax advice.

What Do Full-Service Brokers Charge?

Full-service brokers charge more fees than a discount brokerage, which will typically only charge you when you make a trade. Full-service brokers, depending on your relationship with the firm, will charge transaction fees when performing trades, hourly charges when discussing strategies, or most commonly, the firm will charge a percentage of your portfolio, usually around 1%. Over time, this will end up costing significantly more than discount brokerages, but the attention to your account will also be much higher.

What’s the Difference Between a Traditional or Full-Service Broker and a Discount Broker?

Full-service brokers will help you negotiate trades and can offer powerful, personal insights into the market. Discount brokers allow you to open an account, deposit funds, and, depending on the type of account you hold, generally leave you to your own devices. It should be said that discount brokers still offer powerful research tools and reports, but they often lack customer service anywhere near the level of a full-service brokerage. For those who are comfortable driving their own investment decisions based on their own research, discount brokers are probably the smarter move.

What Do Full-Service Brokers Do?

Full-service brokers provide their clients with a personal approach to investing. Whereas discount brokers provide you the tools needed to make trades, a full-service broker advises, helps you research, and places the trades for you, as well as offers advice on manners such as tax-advantaged strategies and alternative investments. They charge a much higher fee than discount brokers though, which is the main reason some people choose to perform their own research and use a discount broker instead.

Is a Full-Service Broker Worth It?

A full-service broker can be worth it for two reasons, being if you don't want to do your own investment research and would prefer someone else to do it for you, and if you have a large sum of money and want to create a specific investment scenario that would take you too long to set up. Typically, this would be for high-net-worth individuals who are looking to live off the interest and dividends of their investments alone, and who are willing to pay the high full-service fees in order to pass the tax-savings burden to the brokerage.

The Bottom Line

Using a full-service broker will come down to whether you are willing to pay more for a service that delivers more. Discount brokers will always charge less, but they provide much less in terms of advice and research. Full-service brokers can create an intricate investment portfolio with their expertise, something discount brokers typically can't provide.

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