Column: Discount Brokers Finally Found the Bottom

Discount brokers competing to drive client growth have been in a race to the bottom when it comes to fees. I for one believe this is a good thing. Yes, more people should have access to the financial markets at lower costs. That is a good thing. This could even be good as these firms may actually compete with traditional brick and mortar banks for new clients as well and bringing a higher level of banking experience to more people.

I like that the “Discount Brokers” have finally found the bottom $0.

Unfortunately, they are still in the business of making money, how though?

-Making interest on your money and not paying you all of it.
-Selling you other products and services.
-Accepting subsidies from other firms.
-Maybe even selling your personal data.

I like that more investors should be able to invest at lower costs, after all the pillars of tomorrow are forged with the savings of today.

I like that the conversation can now move past who charges the lowest “transactional” cost to the more appropriate. How do I actually accomplish my savings goals?

You see the advice industry has been under attack by these discount brokers trying to convince every mom and pop into believing that they too can become the next Warren Buffet and that the only thing that matters is the fee you are paying to trade.

I believe so much attention was being placed on these “transactional” costs that we were forgetting to understand the big picture. Now the conversation can be focused on what you need to do, how you can do it most efficiently, how do you plan and manage the taxes? How do you control risk? How are you going to accomplish your goals? Do I have a clearly defined investment strategy? Do I actually know what I am doing? Am I comfortable managing my money and my emotions at the same time? Do I have all of the knowledge that I need to be a successful investor and live a successful life? To me these are the most important questions. I do agree that costs and fees are an important part of the equation but, they are not the most important focus and these firms can finally stop fighting over cost, you will have none.

Still…

Am I better off paying nothing and not knowing what I am doing?

Will they always act in my best interest if they also do not tell me how they make money?

I pay for many services because frankly I know I can potentially cause more harm than good, not to mention the time component required. Dentists, Plumbers, Electricians, Doctors, Lawyers, Architects, Engineers, Auto Mechanics, Bike Mechanics, Taylors, Cobblers, and even the Butcher , The Baker, and the Candlestick maker.

While cost is a concern it is never my only concern. I do not recommend eating gas station sushi or watching Youtube to get an idea how to plumb or wire a building. We hire professionals with deep understanding of what needs to get done. Professionals know what I do not know and can look at something objectively. They can look at something and tell when it is broken. They have experience fixing things and they have the knowledge I do not have.

This race to the bottom is good because we can no move on to what really matters. Do you have a plan to achieve your goals? Do you have the wherewithal to see the big picture? Do you have a clearly defined strategy?

Nic Abelow CFP® CERTIFIED FINANCIAL PLANNER™ Practitioner is a LPL financial advisor with Abelow, Pratt & Associates Financial Advisors and Wealth Management in Lake Tahoe. Securities and advisory services offered through LPL Financial, a registered investment advisor, Member FINRA/SIPC. For a list of states in which I am/we are registered to do business, please visit www.tahoefinancialadvisors.com