Discount Brokerages Offer Cheaper Fees But Little Help

Just about everyone who invests - or dabbles - in the stock and bond markets pays brokerage fees.

But more and more people are saving money by doing their buying and selling through discount brokerage houses, such as Charles Schwab, the nation's biggest, or Freeman Weldwood, a regional discounter based in Seattle.

If you don't need advice or hand-holding, you could easily save hundreds of dollars a year - perhaps thousands - by using a discounter instead of full-service firms such as Merrill Lynch and Dean Witter Reynolds.

Doom, gloom predicted

Until 1975, commissions on stock and bond transactions were fixed by law, and there was no price competition. When the fixed rates were scrapped that year, some on Wall Street predicted gloom and doom for brokerage houses.

Instead, investors quickly discovered they had new choices, some of which came with substantial savings.

If you bought 100 shares of Boeing stock at, say $40 a share, your commission at full-service broker Merrill Lynch would run $100. At Charles Schwab, the same $4,000 transaction would cost $55. At Seattle's Freeman Weldwood, the cost would be $45. Some brokerages, known as "deep discounters," charge as little as $29 - the price we found at Pacific Brokerage.

Despite the savings, discount brokers are not for every investor; you have to be willing to make your own decisions on buying and selling.

If you want a broker to give advice, stick to the full-service firms, which come in local and regional varieties (Piper Jaffray, Dain Bosworth, Ragen MacKenzie, Murphey Favre) as well as national.

Those who make their own decisions and don't need a brokerage firm's analysts still need someone to execute buy and sell orders. That's where discounting firms come in.

If you're shopping for a discount broker, you're shopping for price. Ask for a commission schedule, then compare fees for trades that might be typical for you. Ask about minimum fees per trade, which can range from $20 to $39.

In addition, try to figure out in advance what level of service you will need. The more you do without, the more you'll save in commissions.

Some discount brokerages assign customers to specific brokers, who are paid salaries instead of commissions. Some of these brokerages have walk-in offices where customers can do business in person.

Bare-bones approach

Others, which are likely to have the lowest prices, take a more bare-bones approach, shunning retail offices and customer-broker relationships. They simply take telephone orders, usually over national toll-free lines.

-- Among the largest discount brokers are Charles Schwab (800-435-4000), Fidelity (800-544-8666), Quick & Reilly (800-222-0439), and Olde Discount (800-872-6533).

All have walk-in offices in the Seattle area and all offer research reports on companies to customers who want them.

-- For deeper discounts with fewer frills, look to firms like Freeman Weldwood (382-5353 in Seattle or 800-729-7585), T. Rowe Price Discount Brokerage (800-225-7720), Waterhouse Securities (800-765-5185), Kennedy Cabot & Co. (800-252-0090) and Pacific Brokerage (800-421-8395).

For more information: "Investing at a Discount," by Mark Coler, published by the New York Institute of Finance, available at bookstores for $24.95.

Send your questions to: It's Your Money, Seattle Times, P.O. Box 70, Seattle, WA 98111. Send it by fax to 382-8879 or call 464-3126.