Finding the right broker is an important step toward optimizing your investment strategy. But that can be tough to do. There are endless brokerage options nowadays, and you can’t always trust online reviews.
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Tony Robbins has a solution. He recommends watching out for three key red flags and changing to a new broker if you see them.
1. Commissions, Kickbacks and Unnecessary Fees
Some brokers receive commissions, kickbacks and other incentives for putting clients’ funds in certain investments. Robbins says these drag down your returns. They also give your broker an incentive to put your money in a fund that may not be the optimal fit for your financial goals.
A broker may also use a certain exchange to place your orders because they’re paid for doing so. This is called a kickback.
You don’t want to use a broker who works for kickbacks because it gives them a reason to use an exchange that isn’t the most competitively priced. That can lead to you paying more for each trade.
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2. Proprietary Funds
Robbins also recommends watching out for proprietary funds. These usually carry the name of the brokerage you’re using.
Proprietary funds aren’t inherently poor investments. But firms may recommend them over options that are better for your financial goals. Brokers do this because they typically earn more money on proprietary funds.
If an advisor recommends a proprietary fund, look at its fee structure and the assets it holds. Ask yourself if you can own the same bucket of assets at a more affordable price.
For example, if you want to invest in a fund that tracks the performance of the S&P 500, there are plenty of options. You should look for the cheapest one instead of automatically going with your broker’s proprietary fund.
3. Model Portfolios for an Added Charge
Robbins says model portfolios are completely fine to invest in on their own. However, they sometimes carry fees that go beyond what you’re already paying your broker. This is problematic.
The issue is that you’re already paying your advisor to manage your money. Model portfolios are investments they recommend but at an additional cost. You’re essentially paying twice for the same thing.
Robbins says if a broker tries to pull this move on you, that should be the end of the relationship full stop.
Choosing a New Broker
If your firm has any of these red flags, it may be time to look for a new one. Here are some “green flags” that the best brokers have in common.
1. Low Cost To Trade
Today, you can buy and sell stocks, options, futures contracts and more without paying a cent. However, firms like Robinhood that offer no-cost trading make money by selling your data.
While searching for a new broker, you’ll want to decide how you feel about that trade-off. If you’re OK with a firm selling your data, you should be able to trade for free.
If not, you should look for a trustworthy broker who charges reasonable fees. You can even ask prospective brokers how they make their money to ensure their incentives align fully with your priorities.
2. Advanced Research and Educational Tools
It can also be helpful to choose a broker who gives you access to a variety of powerful research tools. These can help to strengthen your investing fundamentals and teach you new skills for optimizing your portfolio strategy.
If you plan on actively trading, having access to these tools can be a game-changer. But they may not be as valuable if you’re more of a passive investor.
3. Plenty of Investment Options
Finally, choose a broker who offers plenty of investment options to choose from. Even if your needs are basic today, they may evolve in the future. Remember, investing is a long-term strategy for building wealth. You don’t have to change brokers multiple times while going through that journey.
The best brokers offer a strong blend of:
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This article originally appeared on GOBankingRates.com: Tony Robbins: Watch Out for These 3 Red Flags in Your Investment Portfolio
