To work with a discount broker might seem to be an attractive bet as you can save on discount brokerage. Though it might seem attractive but working with them is not the best option always. There are some potential downsides of investing with a discount broker as follows
Investing all by yourself:
The first major problem that you face when you invest with a discount broker is you have to do the investing all by yourself. This means that all the decisions will be made by you as far as your investment portfolio is concerned. A lot of time would be spent on researching about securities.
In the meantime you need to have a lot of information about financial markets and how they operate. While some people can handle such situations, others are not equipped to deal with such cases. To be successful in the financial market you need a lot of education and training. In order to develop your portfolio you are not going to avail a lot of help from a discount broker. This has gone on to keep many investors in the dark and they did end up losing out on valuable returns which otherwise they would have been earning.
Dearth of options:
Another problem which arises when you avail the services of a discount broker is lack of options when it boils down to investing. In most cases the discount brokers provide you with a limited range of securities to purchase and sell. The worst aspect is that a list of popular stocks and mutual funds are essentially at their peril.
For some investors this could be fine, whereas for others they would need a wider selection. In certain situations investors could even be targeting specific type of securities. If you are looking to save money with a discount broker you will find that only certain specific type of securities will be provided.
More about the traditional brokers:
Though as compared to a discount broker you might end up spending more money with a traditional broker, you are going to be benefited in various ways. The major benefit that you will be receiving is personalized advice. In case of discount brokers the advice is going to generic that have been developed for the masses. A traditional broker would sit down and analyse your portfolio in details.
They are going to come up with various investment objectives and to shoot out realistic targets. Once you spell out your investment goals or objectives they are going to develop a portfolio based on your needs.
They are going to outline what are the levels of risk tolerance and based on that they are going to help you formulate a portfolio. This is a type of service that most of the investors are on the lookout for as they do not have a lot of idea about the financial markets. If you are going to opt for a discount broker basically you are on your own with no advice and no one to bother you.