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Full Service Stock Brokers

The type of services which your broker may offer you may now range from insurance services, banking services, mortgage services and even accounting services. This has greatly changed from the times when your broker played the role of just informing you about the new stocks and gave general advice on how to act.

In their attempt to get the most of their clients in financial terms, full-service brokerage firms have increased their portfolios of services with such activities as the selling of loans, credit card insurance and estate planning counseling. This type of profit increase contrasts with the consolidation practices of discount brokers. Since full-service brokers have taken the new role of acting as financial advisors, the fees they charge correspond with that of the latter.

Fee-based Commission Structure

More and more full-service brokers have transformed their commissions into fee-based structures, which represent a percentage of the account's value. For example, if you hold $300,000 in your account and are charged a 1.5% fee, you will pay every year to your full-service broker $4,500. By this new fee-based structure, your broker is more motivated to increase the value of your portfolio.

A Hidden Trap

Let us look at the other side of the coin. Often, you will not be straightly informed by your broker about this fee-based structure. Additionally, since your broker still falls in the category of a salesperson and thus is not obliged to act in your best interest, even the provision of a financial plan doesn't guarantees you the beneficial activities of your broker. Before the new law passed by the Securities and Exchange Commission (SEC), every financial planner obliged to act in the best interest of his clients and the failure to do so was prosecuted by law. However after the new law, an exception was made about those brokers, who provide financial and investment advice to their clients. This new law was favorable greeted by the traditional fee-only advisors. Despite the lack of regulation with regards to the provision of financial planning for the brokerages, they still claim that they will act in the best interest of their clients.

Declining Trust

The bad news about brokers is that the trust in their services has significantly decreased. This has been proven by several researches and every of them proves that clients feel the lack of beneficial for them act on the part of brokers.

One of the studies placed Merrill Lynch on the first position as regards to the level of satisfaction and trust on the part of clients. The marketing campaign of the company largely contributed to its success, since it managed to take a big portion of the household's financial planning. This was so since Merrill Lynch offered more loans, such as on credit cards and mortgages.

The second place in this study has been allocated to Smith Barney. Last year the company exchanged its fund activities with the broker network of Legg Mason. This was done in order to avoid any potential conflicts among brokers who offer their clients homegrown products.

The third position was allocated for Edward Jones. This back place was due to the company's stock picking activities, which have worsened lately. Additionally, their portfolio is quite poorer than that of their competitor's.

On the fourth position, due to its problems with retail brokerage, Morgan Stanley. The minor increase of 2% in the retail assets for the first quarter of the year was negligible as compared to the increases experienced by their competitors. Major innovations and problem-fixing activities have been undertaken by James Gorman, who has been previously part of Merrill Lynch's team who was responsible for the successful establishment of the company's retail operations. Gorman has started with the firing of inefficient financial advisers and trainees. He also plans to expand the ultrahigh-net-worth business by attracting fresh funds.

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