Difference Between Full Service Broker and Discount broker

To buy and sell a stock in the stock market, you need a mediator to help you execute your transactions. And this mediator is known as a stockbroker. They are the representatives who are registered in the stock exchange to execute the stock transactions on your behalf. In exchange for this service, they charge you a fee or a commission. Brokers can be an individual or an organization.

Stockbrokers are often classified into 2 types; Discount brokers and Full-service brokers.

Up until about ten years ago, all top stock brokers offered full services. Now, most of the top brokers are discount brokers, covering more than half of the active investors. There are a lot of options available for choosing a stockbroker today, and selecting one that fits your needs can be challenging. So, this article will help you decide between a full service broker and a discount broker and which one is best for your needs.

Who is a Full Service broker?

They are also called traditional brokers who offer you a plethora of financial services. They offer services like investment advice, tax planning, portfolio management, research reports, retirement planning, and many more. Full-service brokers help you throughout your investment journey and advise you on investment products as per your financial goals and risk tolerance. They have offline branches as well as an online presence to help you immediately with your queries.

For all these varieties of services, they charge you a commission which is usually on the higher side. Having a traditional or full-service broker to manage your money and investments may be right for you if your budget is high. However, these might eat up your profits in the long run. Along with a demat account and a trading platform, some traditional stock brokers also offer banking services.

Services offered by Full Service broker-

Apart from stock trading services, full-service brokers provide you with an array of add-on services. Here is a list of some of them:

Financial Planning:

A full-service broker will evaluate your investment needs and goals and cater services that help you reach your goals in a defined timeframe as per your risk tolerance.

Relationship Manager:

You will be assigned a dedicated RM to make your portfolio profitable. They will also provide you with an instant solution to your queries and will keep you updated about the portfolio performance.

In-depth research reports:

A detailed research report of the stocks will be provided by an expert. Researching a stock is complex, so this service will save you time.

Free call and trade facility:

They also provide the facility of call & trade, where a broker can trade on your behalf. They will buy and sell shares in your account as per your call.

Pros of Full Service Broker

• A full-service brokerage firm counsels and advises its clients on how to invest their money, how much to invest, and where to invest it.
• Full-service brokerages have been around for a long time, traditional traders may find the trading experience to be far superior to that of discount brokerages.
• They provide you to invest in a variety of investment products under one roof. So, you can invest in stocks, mutual funds, IPOs, bonds, etc., all in a single platform.

Cons of Full-service broker

• Because of the numerous services they provide, they charge a higher commission than discount brokers.
• Depending on the volume of trades, brokerage plans differ. Trading in high volume will result in a lower brokerage charge than trading in low volume.
• Full-service broking typically has high transaction costs.

Who is a Discount broker?

Discount brokers emerged as a result of the increased use of the internet and free mobile data. They provide a trading platform for online transactions. Fee-conscious investors may prefer them because they charge a very low/flat fee. They do not provide you with any advisory services or investment advice. They will offer only the stock trading services i.e., buying and selling of stocks. It is the reason for their low charges or commission. Technology has allowed discount brokers to outrank full-service brokers due to their economical brokerage, excellent platform, and great customer service.

Discount brokers do not have any physical branches. They operate only with their online platforms. The philosophy behind discount broker services is to empower investors through technology to provide them with best-in-class service at competitive rates.

Pros of Discount broker

• The primary advantage of using a discount broker is lower commission charges as compared to full-service brokers.
• The discount brokers charge uniform commissions to all traders regardless of their volume of transactions.
• Discount brokers provide free access to the best online trading terminals and powerful analysis tools.
• They charge you low transaction costs.
• With discount brokers, you can trade efficiently and save time. Fast and innovative platforms make it easy to place and execute orders in a matter of seconds.

Cons of Discount broker

• Unlike a traditional broker, a discount broker does not provide its clients with research and advisory services, company research reports, and trading calls.
• Most discount brokers provide their services online, so they lack a personal touch with their clients. They do not provide customers with relationship managers to assist and guide them.
• Discount brokers are not suitable for novice investors or those who need guidance making investment decisions.

Difference between Full-service broker and Discount broker

Parameters	Full-service broker	Discount broker
Services offering	Trading platform along with numerous services like portfolio management, tax planning, retirement planning, etc.	Investing platform with exclusive features and analytical tools. They do not provide investment advisory services.
Brokerage	The commission is based on the percentage of each trade they execute.	They usually charge you a flat fee on the per executed orders.
Brokerage charges	Average daily brokerage range between 0.3%-0.7%	Generally, they charge a flat fee of ₹20 per order, irrespective of the total order value.
Banking services	It may be available with some brokers.	It is not available.
Presence	They have offline branches as well as an online presence.	They only have an online presence/platform.
Suitable for	Suitable for investors who can afford to pay a slightly high fee and needs investment advice throughout their journey.	Suitable for those who prefer to make their own investment decisions and are experts or regular traders.
Add-ons	Research reports, stock recommendations, extended margin, personal relationship manager, etc.	Only provides you trading platform.
Examples	ICICI direct, IIFL securities, Kotak securities, HDFC securities, Sharekhan, Angel one, etc.	Zerodha, Upstox, 5 paisa, Groww, Tradejini, Trade smart online, etc.

Which one should you choose?

Selecting a type of stockbroker depends on your personal choices, experience and requirements for trading.

If you want stock advice for your investment, go with a full-service broker. Discount brokers are ideal if you want to do your own research or have a financial advisor to assist you.

A discount brokerage firm offers traders all the tools they need for a minimal fee, while a full-service brokerage firm offers investment guidance for a higher fee.

Discount brokers are ideal for experts who have trading experience. While, if you have just started your investment journey, you can go for full-service brokers.

In short, the choice is up to you. Choose wisely because high brokerage charges will eat away at your profits. Make sure the broker has low annual maintenance costs, and most importantly, no hidden fees.

FAQs about full service broker and a discount broker: