What type of money advisor are you using? You may want to consider your options.

A money advisor, typically called a stock broker or investment advisor, helps you manage your investments if you don’t want to do it yourself.

Note that most stock brokers are commissioned sales people who make investment recommendations that you can accept or reject. There’s nothing inherently wrong with this arrangement, of course. But it can introduce conflicts of interest that can influence your broker’s recommendations, and you should be aware that this might not always work in your favour.

Money advisor options: Full-service investment advisors versus discount stock brokers

Full-service investment advisor: This is the traditional stock broker (although brokers also sell bonds, mutual funds and other investments). But in fact, most brokers or investment advisors are commissioned sales people who make investment recommendations that you can accept or reject.

There’s nothing wrong with this arrangement, of course. But, as we mentioned, it can introduce conflicts of interest that can influence your brokers’ recommendations, and you should be aware that this might not always work in your favour.

For instance, your stock broker’s income is proportional to the frequency of your trading, but increased trading is likely to cost you money. Commission rates vary among investments, which gives brokers an incentive to sell the investments that pay the highest commissions. But a general rule is that the riskier an investment, the more commission a broker earns for selling it.

In addition, stock brokers have no “fiduciary relationship” with their clients. They are not legally required to do what’s best for the client. They are just supposed to try to make sure that the securities they sell are “suitable” for their clients. “Suitable,” of course, can cover a wide range of desirable and not-quite-so-desirable securities.

Discount stock broker: Unlike full-service stock brokers, discount brokers simply carry out buy and sell orders for their clients, and charge lower commission rates than full-service brokers. You pay even lower commissions if you trade stocks online, instead of placing orders over the phone.

The main drawback of using a discount broker is that it gives you unlimited opportunity to make costly mistakes on your own. In contrast, good full-service brokers will try to talk you out of bad ideas.

Discount brokers are your best choice if you make your own investment decisions. Why pay extra for full service you don’t need or use? But if you use a discounter, you may want to secure outside sources of investment advice (such as our newsletters), if only to serve as a second opinion on your decisions.

Is using a discount broker without a money advisor a good idea?

Before you switch to a discount broker, remember that doing so gives you unlimited opportunity to go wrong on your own. The clerk who takes your order won’t warn you if they see you’re about to do something you’ll regret, even if they know this to be the case. As well, you’ll receive no guidance or investment advice while entering trades on a discount broker’s website.

So before you switch, put yourself through a brutal self-assessment. Are you able to single out a selection of investments that’s right for you, keeping investment quality and diversification in mind? If not, you may be better off with a full-service stock broker, provided you can find one who values your business and puts your needs first.

In the long run, the best way to cut commissions is by sticking to high-quality investments and making fewer transactions. This also improves your tax deferral.

It is far more important to focus on high-quality, well-established companies and how they fit in your portfolio for the long term. The longer you hold these stocks, the greater the chance that your profits will improve, as well. That’s something your discount broker won’t tell you.

How stock broker jargon can slant your investment decisions

You may have noticed that your stock broker sometimes uses unfamiliar words and phrases to describe investment concepts. Some of this stock broker jargon is simply shorthand that brokers use amongst themselves, to refer to familiar situations without having to explain the underlying concept. However, the concepts that these “broker-ese” words and phrases represent are just naturally conducive to furthering the goals of the brokerage business.

If you find yourself thinking in broker-ese, you’ll naturally make assumptions that are in tune with the goals of your stock broker, and may be out of tune with yours.

Have you ever used any type of money advisor during your investing career? How did it work for you? Share your experience with us in the comments.