Opening Your First Brokerage Account: Am I Picking the Right Account Type for My Needs?

By Geoff Hafer, Spring 2017 Student Intern

In the last edition of the five-part series “Opening Your First Brokerage Account” we addressed the question “Do I really know all the fees associated with my account?”  Today, we will attempt to answer the question “Am I picking the right account type for my needs?”   To begin with, most brokerage firms offer at least two types of accounts, a cash account and a margin loan account (known as a margin account).

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Opening Your First Brokerage Account: Did I Ask the Right Questions?

By Geoff Hafer, Spring 2017 Student Intern

In our last edition of the five-part series “Opening Your First Brokerage Account” we addressed the question “Am I Picking the Right Account Type for My Needs?”  In this final edition, we will consider the question “Did I ask the right questions?”   Asking the right questions will help you to invest wisely and avoid potential pitfalls.  No matter what your level of investing experience, don’t be too quick to sign, after all it’s your money!

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Opening Your First Brokerage Account: Do I Really Know all the Fees Associated with My Account?

By Geoff Hafer, Spring 2017 Student Intern

In our last post in this five part series on “Opening your first Brokerage Account,” we tackled the question “Who will be managing my account?”  This week we will be addressing the question “Do I really know all the fees associated with my account?”  Investment and brokerage fees can quickly eat into your investment returns.  Whether they’re tied into the funds you’ve selected as an expense ratio, added on as a brokerage commission when you buy or sell, or charged by an adviser who is helping you sort through it all, it’s important that you know what you’re paying.  Here are some of the more common fees to be aware of:

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Opening Your First Brokerage Account: Who will be Managing My Account?

By Geoff Hafer, Spring 2017 Student Intern

In the first part of the series we answered the question, “Did I pick the right broker?”  Today we will address the next question, “Who will be managing my account?”  To answer this question, one must first understand the difference between discretionary and non-discretionary accounts.

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Opening Your First Brokerage Account: Did I Pick the Right Broker?

By Geoff Hafer, Spring 2017 Student Intern

You are about to open your first brokerage account.  “Let’s make some money,” you think to yourself.  As you are about to put pen to paper, several questions race through your mind.  Did I pick the right broker?  Who will be managing my account?  Do I really know all the fees associated with my account?  Am I picking the right account type for my needs?  Did I ask the right questions?  In this five-part series “Opening your first Brokerage Account”, I will address each of these questions in turn and hopefully better prepare you as an investor to come to the table confident and prepared.

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The Importance of Data Protection and Cybersecurity: How to protect yourself from Cybersecurity risks of Robo-Advisers

By Majda Muhic & Qudsia Shafiq, Spring 2017 IAC Student Interns

What kind of information is your robo-adviser collecting from you? How will they store it? What security measures will they take to ensure your data is protected? Are the algorithms your investments are based on protected? These decisions lie in the hands of your robo-adviser – but what can you do?

Because of the sensitive information that is gathered from an investor, it is important for you to select a robo-adviser that will take the necessary security compliance measures to protect your confidential information and will prioritize data integrity.

Hack here, hack there – we hear about it all the time. Any industry is at risk: from the medical sector to the business sector, from the government sector to the military sector.  Only four months into 2017 and the IRS has already experienced a data breach putting nearly 100,000 taxpayers at risk. The increasing use of technology in the case of investors to meet their wealth management is no different than other sectors. And an industry- or sector-specific risk is also a risk for you.

THE SEC has emphasized the need to protect confidential and sensitive information related to these activities from third parties, including information concerning fund investors and advisory clients. These concerns include data protection, privacy and cybersecurity concerns.

What was the SEC’s recommendation in the Cybersecurity Guidance for registered investment companies and registered investment advisers? “An adviser generally should consider and address as relevant the operational and other risks related to cyberattacks.”

The  Guidance  suggests that robo-advisers consider adopting written policies and procedures addressing those risks, covering areas such as the development, testing and backtesting of algorithms and post-implementation monitoring, disclosure to clients of changes to algorithms that could materially affect their portfolios, and the prevention, detection of, and response to cybersecurity threats. The SEC also stressed the importance of including a communication plan with client to notify and update them about significant business disruptions that would materially impact ongoing client services (e.g., periodic updates to websites and customer service lines.)

 

The Potential Advantages of Robo-Advisers

By Majda Muhic & Qudsia Shafiq, Spring 2017 IAC Student Interns

Robo-advisers are overcoming many of the challenges individuals face today by providing solutions catered to a younger, tech-savvier, less financially literate, and less wealthy population. Additionally, robo-advisers are compensating for the decline in pensions offered by employers, providing accessible and cost-effective long-term advice for individuals with increased average life expectancy, and providing alternative vehicles for individuals who are now holding a higher amount of their savings and investments in the form of cash than ever before. Thus, it comes as no surprise that FINRA’s Report on Digital Investment quoted Aite Group’s  projection of global spending on digital wealth management initiatives tripling, rising from $4 billion in 2015 to $12 billion by 2019.

This success, in large part, is evidence of the potential advantages consumers have observed. Some of these potential advantages of using robo-advisers may include:

  • Lower Costs
    • Lower Advisory Fees – Fees are typically significantly lower and depend on account balances and the required account minimum, ranging from 0.00% to 0.75% (for an investment of $5,000). While these fees vary greatly across companies, it is still significantly lower than the minimum-1% charged by human financial advisers.
    • Lower minimum initial deposits – Minimum initial deposits to open an account with a robo-adviser ranges anywhere from $0 to $500 to $100,000, which are often significantly lower than using traditional human financial advisers.
    • Lower minimum investment amounts – Typically, human financial advisers require clients to have a minimum net worth or account balance (typically upwards of at least $50,000 – $100,00) whereas robo-advisers may require a significantly lower minimum balance ($500 or no minimum balance at all.
  • Customized options – Additional options that lead to efficient investment account management through fractional share, single stock diversification, direct indexing and tax management.
  • Efficient Method of Communication with clients – As individuals increasingly rely on written forms of communication (via e-mail and text messages), with many already accessing financial information from apps designed for mobile phones, communication about investments are no different.
  • Accessibility offers Ease and Convenience – Using a digital platform allows clients to conduct the transaction online, from start-to-finish, where they can simultaneously access an endless amount of information and research similar products and services – all in the convenience of their home and around their busy schedule.

Remember, while these may contribute to one individual’s successful investment portfolio, it may not fit your needs. This is why it’s important to weigh both the advantages and disadvantages of using robo-advisers.