When it comes to investing, people are easily spooked, and for good reasons. There are a ton of asset classes where you can look to park your savings and generate steady returns.

However, the financial investment space can get confusing for the majority of the populace. But it can get easier if you pick the right broker.

If you want to derive profitable returns over a period of time, you need to select a broker that aligns with your financial goals and requirements.

The process of selecting a broker is even more important for a new investor who is just getting started.

Here, we look at a few important questions that need to be answered before signing up with a brokerage house.

Is the broker reliable?

This is the most important criteria you should look at when you shortlist a broker. You need to ensure that your capital is safe which means the broker should be registered with the regulated authorities such as the FINRA (Financial Industry Regulatory Authority).

Further, in the U.S., financial instruments such as certificates of deposits and MMDAs or money market deposit accounts are backed by the Federal Deposit Insurance Corp.

Image source: Investimonials

You need to deep-dive into customer reviews by using platforms like Investimonials and search for terms such as fraud protection and customer service before making a decision.

The ideal broker will not only have the required approvals from regulatory bodies, but it will also safeguard your investments by providing users with a secure platform equipped with features such as two-factor authentication and robust customer service.

Where do you aim to invest?

In case you want to invest in the stock market and trade in stocks that are part of your country, you will have a plethora of options.

But in the last few years, investors have had the option to invest in several asset classes including bonds, gold, and even cryptocurrencies.

Further, you can also buy and sell stocks listed in other international exchanges and diversify your portfolio.

Not all brokers will provide you with the above-mentioned options. You need to first understand your investment objective and shortlist brokers based on it.

Are you an active investor or a passive investor?

You can either be an investor who researches and identifies stocks for your personal portfolio or trade passively via ETFs or exchange-traded funds. In case you are an active investor, the ideal broker should equip you with the required tools that will help you accelerate your investment decision.

It means the broker should provide you with real-time price updates, valuation tools, stock screeners, and historical financial information.

Alternatively, for a passive investor, the brokerage house should provide the opportunity to invest in several passive instruments such as ETFs and mutual funds.

What are your financial goals?

A lot depends on your financial goals and requirements. Do you want to earn a steady rate of return and beat the market?

In this case, the broker should allow you to shortlist mutual funds or ETFs that have historically outperformed the broader markets.

Further, if you have a high-risk exposure and want to trade in cryptocurrencies and sophisticated instruments such as futures and options, you need to find a broker that provides these services.

Alternatively, if you are nearing retirement and aim to have a lower risk exposure, a broker with a basket of low-income bonds will be the ideal platform.

Are you fine with paying high fees?

Most legacy brokers will charge investors and traders a commission for using their platform.

While a few brokers might lower trading fees and commissions they might have high currency conversion costs or steep account management fees.

You basically need to calculate the associated costs to subscribe to a brokerage account over a particular year and not just the price per trade.

What services do you want from a broker?

Do you just want a broker that will provide you with a platform to execute your trades and investments or are you looking for a full-service broker that will provide you with an entire suite of advisory and investment management solutions?

While advisory solutions are higher priced they also provide investors with insights and the required guidance to help you attain your investment goals.

You can take a call based on the services you require the broker to perform.

The final takeaway

We can see that choosing a broker comes with its own set of challenges which might confuse the newbie investor. It makes sense to compare broker reviews and look at the product and services they offer.

Most brokerages will have a detailed description of the tools and services they offer. But it’s always advisable to sign-up to a free trial (wherever applicable) before taking the plunge.


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