How do I Choose the Best ETF Broker?

Justin Riche

The best way for an investor to find the ideal exchange traded funds (ETFs) broker is by comparing an array of brokerage houses and what they offer. The investor should then choose one who offers a package that will meet his or her investment requirements. This means that the choice ETF broker will likely satisfy the needs of the investor in question. These needs may include a fair commission structure, outstanding customer service, and other aspects that are likely to keep the client happy.

Although most ETFs are passively managed index funds, in 2008 the U.S. Securities and Exchange Commission (SEC) approved the development of the first actively managed ETF.
Although most ETFs are passively managed index funds, in 2008 the U.S. Securities and Exchange Commission (SEC) approved the development of the first actively managed ETF.

One major aspect that most investors will consider is the kind of commission charged by the ETF broker, which the typical ETF dealer will base an a particular criteria. For example, a broker might charge less commission if the investor has a large amount of money in his or her account and trades frequently. This might not work for the small investor who wishes to engage in passive trading, because the commissions might be higher as a result. The broker should have a transparent commission structure and — all else being equal — lower fees than the competitors. Therefore, the investor should survey the brokers he or she is interested in and note the one who stands out.

The best ETF broker should have an outstanding customer service. Having an online live chat service and knowledgeable staff is handy as well, because queries can be answered quickly. If this live chat is not available, then clients' queries should be answered within 24 hours via email, and live telephone receptionists should be available during normal business hours. Investors who prefer doing business face to face rather than through electronic means should find a broker who has an office in their particular town.

Furthermore, there are brokerage houses that allow individuals to access all types of ETFs, mutual funds, stocks, futures, foreign exchange and other investment instruments all from one account. This type of broker will most likely be the perfect choice for investors who seek to diversify their portfolios using varied investment vehicles. The types of accounts that can be offered by an ETF broker include Individual Retirement Accounts (IRA), guardianship accounts for minors, corporate accounts and more. The ETF broker who provides the types of accounts of particular interest to an investor will be ideal.

An online broker would be suitable for most investors, which also usually lowers the costs, because they can manage their own trades. This is because when an investor has to call the broker to place orders for him or her, there will be additional charges incurred in most cases. Furthermore, there are review websites than can be used to quickly gauge the views of clients who have dealt with the listed brokers. Caution should be used when consulting these websites, because some might have biased reviews for different reasons.

Furthermore, the investor will also need assurance of the security of his or her funds. Therefore, the best ETF broker should be financially stable and should keep its finances and the clients' finances separate. This is because, in the case the broker was to go bankrupt, the clients' money would be secured and recoverable without much unpleasantness. Typically, though, brokers will have insurance that protects clients' funds. Insurance, however, does not cover money lost through the normal ups and downs of the markets or as a result of a bad investment strategy.

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