Our Two Bits, Part 3: Brokers vs Advisors
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Most of the world’s population don’t think about stocks or actively invest. So, is Bits a broker or advisor? And what is the difference?
Brokers vs. Advisors
Brokers are not specific to the finance industry. A server that takes your order and delivers your food at a restaurant is acting as a broker. Your real estate agent that helps you find your dream home or one-bedroom closet in NYC is your broker. Whether you are paying for food, tipping the server or buying an apartment, a financial broker is pretty much the same. Ask your grandparents; they remember the days when they would call their financial broker to discuss the market and place an order — except for stocks, not for a meal or apartment.
So a financial broker takes an order, typically to buy or sell, and retrieves your shares of stock for you. And similar to other brokers, your financial broker will take a commission or tip, ideally for doing a good job on placing and retrieving your stock order. It is very important to understand the commission and fees your broker is charging you. Most brokerages today have complicated and tiered fee structures that demand a lot of attention from customers. Does it make sense to pay a flat fee of $5 per order regardless of the order size? Would a server charge you a fixed fee regardless of how much food you order? If they did, that’d only work in your favor if you order a lot of food.
What about those “no broker fee” apartments you find on StreetEasy — the ones that are still shown by brokers? How do those brokers make money? We know sometimes those fees are passed on to landlords, so beware of fees priced into your rent! Other times the cost of a no-fee apartment is limited in choice. Robinhood is a popular brokerage offering no-commission trading. Fortunately, the folks at Robinhood were smart to eliminate the costs of (limited) trading and empowering a new generation of investors to trade for free. Today, this function is done by robots (algorithms) created by financial brokerages that accept orders on mobile phones and web applications.
At Bits, we don’t charge any fees for getting free stocks. In fact, we don't charge you for holding the assets in custody, maintaining your tax records, or even preventing fraudulent activities.
We’re advisors, not brokers; we don’t take orders, we offer advice. We’re more like your favorite sommelier (the guy that suggests wine pairings). You will place your order with the server after asking the sommelier what kind of wine complements your palette, meal, time of day, etc.
But we give more than just investment advice. We’ve partnered with one of the best brokers on the street to make sure you get the best service at no cost, DriveWealth. That’s right, we can open a brokerage account on your behavior in less than a minute. Bits will go live this summer. Sign up to be the first to access the app.