Discount Brokers Vs Full-Service Brokers: What’s the Difference

Investors require an intermediary to buy or sell financial securities in the stock market. That intermediary is known as a stockbroker. Investors have multiple options available regarding stockbrokers. Investors often get confused regarding whom to choose between discount stock brokers and full-service brokers. This article may help you decide whom to choose between discount brokers vs full-service brokers.

Explore this article to understand what a discount broker is, how discount brokers work, and the advantages and disadvantages of discount stockbrokers. The article also covers what a full-service broker is, how full-service brokers work, the advantages and disadvantages of full-service brokers and the differences between discount brokers vs full-service brokers.

What Is A Discount Broker?

A discount broker is a broker that allows investors to execute buy and sell orders at relatively lower costs. Popular discount brokers in India are Zerodha, Upstox, Groww, 5paisa, Paytm money, etc.

How Does A Discount Broker Work?

Discount stockbrokers usually operate their businesses online and have few physical offices. They primarily leverage technologies to serve their clients. They act as an intermediary between investors and the stock exchange by executing stock trading orders.

Discount stockbrokers usually do not offer research and advisory services. They charge flat fees regardless of trade value and thus make money.

Advantages Of Discount Brokers

• Cost-effective brokerage services: 

Discount brokers offer limited services to their clients. Moreover, they incur lower operational costs due to lesser physical infrastructure. These two may be the primary reasons they provide services at lower costs. Lower brokerage charges ultimately reduce friction costs, increasing the overall returns for investors/traders.

• Unbiased service: 

Discount brokers usually only allow users to trade in the stock market through their online platforms and do not promote third-party products. Therefore investors using discount brokers may make an investment decision without being misguided.

Disadvantages Of Discount Brokers

• Minimal services: 

Discount brokers usually do not offer add-on services such as research, advisory, retirement planning, etc. Therefore, when investors choose a discount broker, they would be required to research on their own to make investment decisions. Moreover, discount brokers either do not provide portfolio management services or offer them through additional subscriptions. 

Investors who lack knowledge and experience in the stock market and need guidance to make investment decisions may find this option less suitable. 

If you are in a similar situation, you may find it helpful to invest in WealthBaskets created by SEBI-registered professionals.

• Unavailability of branch services: 

As most discount brokers operate online, the investors preferring to make investment decisions after discussing the investment with the relationship manager may not find a discount broker attractive.

What Is A Full-Service Broker?

A full-service broker is a traditional broker that offers investors numerous services, such as stock trading and investments, research, advisory, tax planning, retirement planning, etc. Full-service brokers have physical branches, and some have online platforms in addition to physical branches.

Some full-service brokers in India include but are not limited to IIFL Securities, Sharekhan, Motilal Oswal, SBI Securities, Kotak Securities, etc.

How Do Full-Service Brokers Work?

Full-service brokers assist investors in investing in various financial products, including stocks, IPOs, bonds, mutual funds, etc. The full-service broker facilitates the investors with a relationship manager who assists investors in making an investment decision. In addition to investment-related matters, they assist individuals in estate planning, money management, etc.

Full-service brokers charge brokerage fees (generally proportionate to the trade value) or commissions in exchange for these services.

Advantages Of Full-Service Brokers

• Customised services: 

Full-service brokers help the investors to make the right investment decision at the right time by analysing investors’ risk, return and time horizon preferences. Novice investors who lack experience and guidance may find it useful.

• Detailed research report: 

Full-service brokers conduct market research and provide investors with detailed research reports. Those investors who don’t have time and knowledge to research may find this helpful.

Disadvantages Of Full-Service Brokers

• Higher brokerage charges: 

While trading the stocks through traditional brokers, a considerable part of the trader’s returns goes towards brokerage charges. Higher full-service broker charges may result from the umbrella of services provided and the higher infrastructure costs.

• Conflict of interest: 

One of the problems of using a full-service stockbroker is that investors may get misguided. For instance, if the full-service broker sells insurance policies, they may convince the investors to buy them to earn commissions. In such a case, the investors may make decisions under a broker’s influence.

Discount Brokers Vs Full-Service Brokers: Differences 

To understand the stockbroker comparison, look at the differences between discount brokers and full-service brokers.

Final Thoughts

The main task of a stockbroker is to enable investors to place and execute trade orders. The discount and full-service brokers differ regarding services offered, brokerage charges, physical presence, etc. Depending on your requirements and preference, you can decide whom to choose between the two. 

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