Brokerage Account

There are many great choices of brokerage options, ranging from higher-fee full-service brokerages to low-fee execute only platforms. In this section we will show you how to set up and choose the right one which will result in how to make the right decision in choosing brokerage.

To decide which brokerage account is best for you, you should ask yourself the series of questions we have prepared.

If you choose the investment advice route, the advisor will help you choose the brokerage suited to your needs. This saves you the time and research of choosing yourself.

See the rest of the questions below to better understand what kind of questions the advisor will ask of the brokerages. You can ask these questions of your advisor to see why they choose that particular brokerage and why it is best suited to you.

You may want to choose a brokerage that comes with Robo-advisors or online brokerages.

Over the last few years, Robo-advisors have become immensely popular as the fees are lower than human advice. The system will first ask you a series of questions to identify your objectives and risk profile. Then, based on your answers, the Robo-Advisor will choose and manage your investments using complicated computer algorithms.

On the downside, Robo-advisors are less flexible than human advisors and will not be as tailored to your needs as traditional investment advice which is equipped with customer service to adhere to your needs.

Another option is to manage your investments yourself without any advice. Unless you are a finance professional, you might want to consider accessing a brokerage that offers free research with their platform, which will help you make informed investment decisions.

Go through the other questions to help you decide which kind of platform is best for you.

If you choose a more active strategy where you might try and make gains on short-term price fluctuations, you will need to trade more frequently. If this is the case, you will want to choose a trading platform with low or no trading/dealing fees.

Trading/dealing fees are the fees charged when buying or selling investments.

If you have good investment knowledge, you may want access to more unique products known as alternative investments. Brokerages will typically charge more for trading fees of alternatives and or more in brokerage fees to access a more expansive investment universe.

Alternative investments can include derivatives, commodities, Real Estate and currencies.

Be careful if you do decide to use alternative investments, as they tend to be riskier. They tend to be less liquid, meaning it is harder to sell them at any one point in time. Often they have higher fees associated with them.

With Options, a type of derivative, the potential downside can theoretically be limitless. So you have to have good investment knowledge and be an experienced investor before moving on to alternatives.

To get exposure to Real Estate or commodities, often investors will just use funds instead of individual products.

Some platforms may require you to keep your money in your account for a lock-in period! For instance, a platform might require you to keep your money in the account for at least a year before you can take money from the account. Therefore you should always read the terms and conditions carefully to check for the details.

A lack of flexibility can be problematic if the investment funds are acting as an emergency fund.

Another thing to think about is the time it takes to withdraw money from your account. This is the time between requesting a withdrawal of your funds and receiving the funds in your bank account. For some platforms, it might take a day, for others it might take a week. This is another time constraint you should consider if you need immediate access to your funds.

Most platforms do not have account minimums. There are many good options without minimums. However, if you are investing a large amount, you may want to consider an account with a minimum as it may offer better benefits.

There are several types of fees associated with using a brokerage account.

Brokerage Fees - There is a brokerage fee normally charged annually to; maintain clients accounts, pay for any research and grant access to the investment platform. Brokerage fees can be a fixed amount or a percentage of the account. If you have a small account, a percentage fee may be more beneficial. However, over time as an account grows bigger, a percentage fee may eat into your profits.

Commissions - known as trading or dealing fees. These are the fees charged when you buy or sell an asset in your brokerage account. If you wish to trade frequently, it is advisable to choose a brokerage with lower commission fees.

Withdrawal Fees - There may be a charge to take out money from your account, or it may be the case they won’t allow a withdrawal if your funds fall below a specific minimum. Make sure you are clear on the withdrawal rules.

A margin account is different from a traditional brokerage account, as you have access to loans rather than just your cash balance to invest. An interest charge will apply to your margin account, the same as a standard bank loan. Therefore, you are making the bet that your investments will grow faster than the interest on the loan.

If you judge it correctly, you can make sizable gains by increasing the amount invested through borrowing—the securities in your account act as collateral for the inability to make payments. A margin account is only really available to investors with high capital and a high capacity for loss.

At Cameron James, we offer you advice on what investments best suit your financial needs and personal circumstances. One of the products we offer advice on is brokerage accounts.

It is a misconception that you need to be rich to take investment advice; everyone can benefit from investment advice. Here are some of the benefits:

An advisor will help organise your thoughts and decide what you are trying to achieve with your money. You can then set some clear financial objectives for yourself: providing a level of annual income at retirement, saving for your children’s college fees or saving towards your first house. The advisor will then help you to put together a plan that is achievable to obtain your objectives.

Life is busy, and not everyone has time to assess their investments! An advisor will give you regular updates on how your portfolio is performing and why it is performing that way. These regular updates help keep the client informed of their finances and see how close they are to achieving their goals. It also gives a chance for the client to work with their advisor to change their portfolio to meet any changes in the client’s financial goals.

Good advisors will have an in-depth knowledge of many accounts and understand which one is best for you. This is more relevant with pension investments as there are more options available than everyday investing!

Advisors have an array of knowledge of many different investment options. They will put in time and costs researching to put together investment portfolios that are well diversified and suited to you and your level of risk. Of course, no investment is risk-free, but in comparison, advisors tend to outperform individual investors over the long term.

Lots of people struggle to manage their own money; it can cause unnecessary stress in your life. In addition, with an emotional attachment to your money, you are more likely to make irrational decisions. For instance, when your investment value falls, you may sell off assets, even though asset prices will likely rise in the future.

Many clients panicked by the fall in stock prices in 2020, when the S&P 500 fell by around 20%, called up thinking of selling their investments. Cameron Jame advice against this course of action, believing the market would recover. The S & P 500 did recover around Jan 2021. This example shows the value of an advisor’s knowledge and experience in extreme market conditions.

In our advice process, we will go through questions about your financial goals and objectives. Once we understand your financial circumstances, we can create a recommendation report that includes our recommended investment portfolio and brokerage account.

We will then help you with the application process with the brokerage. You’ll need to provide some basic information about yourself such as your date of birth, social security number and address.

Once the account is set up you will have online access to your account and be able to view the trading value of your account. In addition, we will monitor your account and provide you with quarterly market updates as well as a thorough annual one-to-one review. In our one-to-one yearly review, we meet with our clients to explain how their investment portfolio has performed and then make any necessary changes to the portfolio based on the market and the client’s needs.

Please get in touch with one of our advisers by leaving your information here, and we will get back to you as soon as possible.

Unlike an Individual Retirement Account (IRA) you can transfer money in and out as you wish without facing any penalties. However, Brokerage Accounts are not tax-advantaged like IRAs. Brokerages can also be referred to as taxable brokerage accounts. If you make a financial gain when you sell off investments, you may be subject to capital gains tax.

You can open both simultaneously if you wish, and this is advisable if you have the funds to do so. By having both, you can focus on both long-term and short-term strategies.

An IRA is used to save towards retirement and cannot be accessed till 59 ½. It is essential to have a retirement plan in place so that you are able to live a comfortable life in old age. One of the best ways to save for retirement is by using an IRA.

The fact you cannot touch the money until retirement is a good way of making sure you don’t take money out. In addition, an IRA has tax advantages and will not face capital gains charges like a Brokerage account. Therefore, for retirement goals, you would choose an IRA over a brokerage account.

A brokerage account is used to invest and save for short-term goals before retirement, such as going on holiday, saving to buy a house etc. You can take money in and out of the brokerage account as you wish. The downside of the brokerage is that it is not tax-advantaged like an IRA so you do have to pay capital gains tax on investment gains. It is advisable to invest regularly and in a well-diversified portfolio, this will help you to achieve your goals.

Even if there is a sizable amount of your wealth in your Brokerage account you still have immediate access to it in case of emergency, this allows your capital to grow whilst still having flexible access.

If you are a citizen or work in the UK, you have the right to open an ISA. Within an ISA, your investments can grow tax-free of any taxes. In addition, you can take out your money at any given time without paying income tax on withdrawals, as no tax relief is granted on contributions. Therefore, it is similar to Roth IRA in that you pay tax before contributing.

Brokerage Accounts are not tax-advantaged and you do have to pay capital gains tax on investment gains.

Capital gains tax applies when you buy an investment at a low price and sell at a higher price. The difference, the investment gain, is the cash you pay tax on.

There are two types of Capital Gains Tax:

• Short-term Capital Gains
  Investments that are held less than a year before selling are taxed using short-term capital gains. The rate is the same as ordinary income tax and is less favourable than long-term capital gains. The specific rate will be whichever tax bracket you fall under.
  Short-term Capital Gains Example
  Isaac invests $1000 in one stock in his brokerage account in January of that year. Later that year, in September, he sells his stock for $1500. Isaac is in the 22% tax bracket. Therefore he pays $330 in tax and is left with $1170.


• Long-Term Capital Gains
  Investments that are held more than a year before selling are taxed using Long-Term Capital Gains Tax. The Long-term rate is usually more favourable than the short-term rate. There are three rates 0%, 15% and 20% that are dependent on your level of income.

Source: Internal Revenue Service

For example, Mary filing status is Single, and she sells off assets she bought five years ago with an investment gain of $20,000 from her brokerage account. She also has an annual salary of $80,000. Her total taxable income is $100,000; this, unfortunately, puts her into the 15% Rate bracket.

Therefore she will pay 15% of the $20,000 gain which is $3000, leaving her with $17,000 net of tax.