Are You Using the Wrong Brokerage Account? Look Out for These Red Flags

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The right brokerage account will offer a mix of investments that works for you. Read on for signs you’ve ended up with the wrong account for your needs. 

You need to invest money if you want to build wealth, rather than just leaving your money sitting in your savings or checking account where it earns minimal (if any) interest. But you need the right brokerage account if you want to make the best investments and maximize the chances of meeting your long-term financial goals.

Unfortunately, many people don’t give a lot of thought to their brokerage firm and could end up using the wrong one. You don’t want that to be you, so watch out for these red flags that suggest your broker isn’t serving you well.

1. You’re paying high fees

Most discount online brokers do not charge any commission fee, nor do they charge fees for things like allowing your account to drop below a certain balance or being inactive in your account. There’s no reason to use a discount broker that charges fees since there are plenty of options out there that don’t.

If you use a full-service brokerage firm that offers money management services, you’re very likely going to pay a fee. In fact, it’s not unheard of for full-service brokers to charge around 2.00%. This is a lot of money, and will cost you a fortune over the long haul.

Say, for example, you have $50,000 invested over 20 years and you earn a 10% average annual return. If you paid no fee, you’d have $336,381 after two decades. But if you paid a 2.00% fee, you’d be left with only $233,051.

In most cases, there is no reason at all to use a full service brokerage firm — especially as it’s pretty easy to build a portfolio yourself using exchange-traded funds (ETFs) or target date funds. Actively managed portfolios also rarely outperform the market. So, if you are being charged a lot for investment services, this is a huge red flag that you have the wrong broker.

2. You have a hard time researching investments

If you are interested in researching a particular type of investment, you will want to make sure your brokerage firm offers the tools you need.

For example, if you hope to primarily invest in ETFs, you’d want a brokerage account that offers a good screening tool to allow you to narrow down your options based on things like fees, asset class sector, and whether the fund is actively or passively managed.

If, on the other hand, you want to invest in individual stocks, then you might want to make sure your brokerage firm offers you the chance to do things like read earnings reports or review a chart of the company’s past performance.

If the broker you’ve chosen either doesn’t offer the tools you need or its trading platform is too complicated for you to use easily, you should switch to a different company. There are too many platforms out there for you to struggle.

3. You can’t invest in all the assets you want to buy

Finally, you’ll want to be sure your brokerage firm offers you the chance to invest in all of the different kinds of assets you are interested in. If you have researched a particular kind of investment and you discover you can’t buy it because your broker doesn’t offer access, this can be frustrating — and it can cause you to lose out on an opportunity to implement your trading strategy and hopefully make generous gains.

The bottom line is, you don’t have to deal with a broker that charges too much or makes trading difficult for you. If you spot any of these red flags, take the time to find an alternative that’s a better fit. When you can manage your money more effectively and more easily build wealth, you’ll be glad you made the effort.

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The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.Discover Financial Services is an advertising partner of The Ascent, a Motley Fool company. Christy Bieber has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Target. The Motley Fool recommends Discover Financial Services. The Motley Fool has a disclosure policy.

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