What is the difference between discount brokers & full service brokers?
The Difference Between Discount Brokers and Full Service Brokers
Generally speaking, a discount (or “low-cost”) broker differ from a “full-service” broker in a variety of ways. In this article, we will break down the differences between these two types of brokers.
Full service brokers
Most brokers in India are full service brokers. Full service brokers have been operating in India for decades. Generally speaking, a full service broker offers the following:
- A relationship manager. The relationship manager will assist the customer in opening his/her account. They will also assist in answering the customer’s queries.
- Provide tips and advisory services. Many times, full service brokers will give buy/sell tips during trading days. The customer can also ask for guidance on whether or not it’s a good idea to buy or sell a particular stock.
- Have branches. Full service brokers usually have hundreds, sometimes thousands of branches and sub-brokers across the country.
- Charge brokerage. While a discount broker might generally be much more cost-effective, full service brokers charge brokerage. You can refer to our article on zero brokerage to know the difference between brokers who charge brokerage versus zero brokerage models.
Discount brokers are a relatively new wave of brokers in India. Generally speaking, these brokers can be characterized by the following.
- Lower costs: “Discount” brokers are usually much more cost effective than full service brokers. Their costs are usually a lot less than full service brokers.
- Low overhead: A discount broker is able to charge less than a full service broker due to lower overhead costs.
- Less branches and sub-brokers: Discount brokers generally have a lot less branches than full service brokers. Many times, they have no sub-brokers and only a handful of branches or service centers. This allows them to keep their costs low.
- No relationship managers: Discount brokers generally do not provide a relationship manager. Instead, the entire process is streamlined so that customer service is not compromised. There is a centralized customer support staff that answers calls promptly with good service.
- No Tips: Discount brokers generally do not provide “tips” to their customers. Instead, they try to empower the customer. Discount brokers provide reliable trading software, good customer support, and surety of safety of funds. By not providing tips, customers of a discount brokers generally end up making their own trading decisions.
- Zero brokerage: many discount brokers work off the “zero brokerage” model.
The winner: discount brokers
While many full service brokers are struggling to remain profitable in the market, discount brokers are gaining popularity. It is safe to say that they are here to stay. Not only are these types of brokers widely used in the West, but some of the largest brokerage houses in the West are discount brokers.
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