In the same way you need a bank to store your money, you need a brokerage firm in order to invest it. Brokerage firms are where you keep stocks, bonds, mutual funds, and retirement accounts.

Picking a brokerage firm is, in many ways, less consequential than picking a bank. Most of us don’t interact with our brokerage firm every day – or even every month. Still, there are all sorts of ways that picking the wrong brokerage firm can cost you.

The companies that will help you invest fall into a few different categories (though they’ve bled together somewhat in the last decade or so).

1.) Traditional brokerage firms (e.g., Merrill Lynch, Smith Barney, etc.): These are the firms that have been around for decades and, in the old days, used to pair you up with a man (always a man) in a suit (always a suit) to help you pick stocks. For this privilege, you’d pay a fat commission every time you moved your money.

In a recent (and unfortunate) development, the old-fashioned brokers are pushing people with smaller accounts to use call centers rather than talking to the more experienced individual stockbrokers in the office. Also, a lot of the old-fashioned brokerage firms have moved to charging a set fee based on the amount of assets you have, as opposed to charging commissions for each transaction.

2.) Discount brokers (e.g., Charles Schwab, Fidelity, E-Trade, etc.): Nowadays, “discount brokers” often compete head-to-head with the traditional brokers. They got their discount moniker because they charged smaller commissions, often because there were no brokers there to give you investment advice.

A lot of traditional and discount brokers run their own mutual funds too. In fact, many of these companies are in lots of different businesses – some are part of bigger banks, they may administer your 401(k) plan at work or your 529 college savings plan as well. But these firms will let you buy and store any stock or mutual fund – and plenty of other investments, too.

Again, the big difference between the first two types of firms is price – it can still be much cheaper to invest with a discounter. The traditional stockbrokers offer more hand-holding and advice, especially if you have a lot of money, but the discounters have added staff that does similar work in recent years, too.

3.) Banks: Many banks, like Citi, have owned brokerages for years (in this case, Smith Barney). Others, like Wachovia, have bought brokerages more recently (in this case, A.G. Edwards). Bank of America stepped into the arena big time by agreeing to acquire Merrill Lynch. Wells Fargo has made similar moves.

To add to the confusion, many brokers, like Schwab and E-Trade, have added excellent banking services. Essentially, everyone wants you to store all of your money with them, whatever you’re using it for and however often you’re using it.

Want to Know More?

• Do You Need A Broker?
• Advice on Choosing a Brokerage Firm
• Grilling Guide: Questions to Ask When Picking a Brokerage Firm