Never before has trading been so interesting until this time. The reason for that is the internet. The internet enables us, ordinary people, to take part in this activity that some time ago was only done by professionals. Before, we have to hire someone to do the trading for us?now, we can do that for ourselves. The internet made that possible. And the fees are lower than before. Because of competition, we don't have to have a lot of money to get started. We can open a brokerage account online just like opening a checking account. What's more, most online brokerage companies do not set an account minimum, inactivity fee, and other tabs most conventional brokerage companies charge. By conventional I meant the bricks and mortar brokerage firms.
Having worked in a conventional brokerage company gave me the insights of how the brokerage works. I'm going to tell you in a nutshell:
If you are working with a broker, who may also be called a financial adviser, planner, or rep (short for representative), that broker is licensed to do transactions with you but she does not manage your money. She passes your money to money managers.
Some financial reps work for a particular money manager, some are independent. If your financial rep is independent, then she is the kind of rep money managers compete for. Now, the financial rep has to choose among the money managers, supposedly for who will have the highest yield for your money depending on what you want for it ? whether it's income, capital preservation, growth, etc. Here, there's a gray area because of this thing I call the YTB factor ? the yield to broker. Because of the financial reps' freedom to choose among the money managers, she can choose whether to wok for you or for herself. Money managers don't pay the same commissions. Your financial rep may pass the business to the one who pays the highest commission. Your money may not be working hard for you but working hard for your rep.
Brokerage firms don't care for small money. They care for big accounts. Why? Because only in big accounts do they reap profits. High performing managers have high account minimum and they pay high commissions. Small accounts have no place in the deluxe sophistication of conventional investing.
But even if they are the big guys of investing, these money managers cannot guarantee the return of your investment. In every paperwork you sign, in any advertisement you see, you will notice that there's always the clause your investments are not FDIC (Federal Deposit Insurance Corporation) insured or guaranteed. Gain or lose, the money manager is off the hook.
No money manager has had a phenomenal performance even how good they are. It's the economy that calls the shot. If the times call for a recession, then there will be a slump in the market no matter what. Because money managers are big, their actions are easily detected by today's market indicators. We, individual investors, can dodge the bullet because we are small.
There are many resources now that we can access to be educated in the matter of investing. The internet is giving us the option to take charge of our finances. With the information and tools that abound us, we can now actively trade and not pay someone to do it for us. Be it stocks, futures, or forex, if we would teach ourselves, we can be trading on our own in no time. This is an opportunity that technology is handing us and there is no excuse to be left out.
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Tags: commissions, nutshell, insights, bricks and mortar, checking account, freedom, brokerage account, brokerage company, tabs, financial adviser, ordinary people, brokerage firms, gray area, money manager, money managers