Full Service Broker vs Discount Broker?

A beginner in the context of this topic should not be construed as just somebody uninitiated in the world of Investing/Trading; but also somebody who would much rather rely on a specialist to get the job done than learn the ropes himself.

Learning to invest or trade comes with a steep learning curve, which majority of the working populace engaged in other absorbing professions or pursuing individual dreams would be happy to do away with. This is not to say that any other source of income is unwelcomed (especially in the world which is changing every second); but rather about whether learning the expertise is really necessary.

The world of investing and trading needs continuous monitoring and the source of market change could come from anywhere, anytime. Change in government policy, a virus scare, a botched-up takeover, foreign market scandals or an unexpected rewarding quarter; anything, anywhere and anytime – besides we all know how sensitive the market is.

Apart from this, it may be challenging for an individual or retail investor to arrive at a profitable decision, as they are not privy to a lot of inside information or might lack the resources necessary to monitor everything.

How can an investor who is a beginner make profitable decisions without succumbing to the above challenges? Let’s understand the different entities that come into play here, i.e. Full-Service Brokers and Discount Brokers.

Understanding Full Service Broker vs Discount Broker

What is a Full Service Broker?

A Full-Service Broker is a Traditional Broker that provides complete investing services to its clients. Apart from providing a trading platform for investment, they also provide subsidiary services like Research Advisory, Investment Services, Wealth Management and Portfolio Management Services. All these and more come under the ambit of a Full-Service Broker who further provides both online and offline services to complete the circle.

The most important aspect of the full-service broker is that they have a dedicated and a specialized research team that provides an in-depth technical and fundamental analysis of companies and by extension investments. The reputation of the broker depends on the expertise and diligence of this team.

Full-Service Brokers have branches, franchisees and business associates spread across India with an entire portfolio of services available. They also offer a dedicated RM (Relationship Managers) to customers.

What is a Discount Broker?

As the name suggests, the Discount Broker uses the evolution of the internet to offer fixed brokerage plans. Fixed brokerage plans charge a fixed brokerage fee irrespective of the trade value. For e.g., if a Discount Broker offers Rs.20 brokerage fee/per order on equity intraday trading. This means that regardless of whether the trade value is Rs.10, 000 or Rs.10 Lakhs; in a single trade, the brokerage fee applicable remains Rs.20.

That’s about the only USP of a Discount Broker.

As opposed to a Full-Service Broker; a Discount Broker does not have its own dedicated Research Team. They instead, tie-up with independent research portals like Morningstar, CafeMutual or other such; for research purposes.

Let’s Make a Comprehensive Comparison of Full Service Broker vs Discount Broker

Verdict?

So who do the beginners go with? Or as mentioned in the start how many of us are willing to learn the basics of the stock market and investing from scratch?

Independent investing or trading is a slow confidence-building process with a steady risk and stress tolerance building. All trades will not go your way; some might even wipe out your invested capital. The stories that “the stock market has made paupers out of millionaires and millionaires out of paupers” abound. This is the enigma that attracts investors to try their luck out.

Keeping in mind the time constraints and the volatile nature of the market that requires continuous monitoring; an investor would benefit from the vast expertise and customized services provided by a Full-Service Broker. That way, an investor can liaise with the research team, learn the stock market in simple tips, and comprehend how they think.

With Full Service Brokers – You make a profit? Fine, you pay from that. You make a loss with their support? Fine, you can shake up that RM or ask the research team for an explanation.

Who are you going to catch at a Discount Broker?