Every Wednesday, we publish our “Investor Toolkit” series on TSI Network. Whether you’re a new or experienced investor, these weekly updates are designed to give you a specific advice on successful investing. Each Investor Toolkit update gives you a fundamental tip and shows you how you can put it into practice right away.

Tip of the week: “When you choose the person with whom you invest your money, you have three ways of approaching one of the most important investment decisions you will make.”

When you decide you want to invest on your own in the stock market, you face a decision every investor has encountered. You have to choose whether to use a discount broker, a full-service stock broker, or a portfolio manager. This decision is no formality; it will play an important role in the way you approach your investments.

Here is how the three choices stack up:

• Full-service investment advisor: This is the traditional stock broker (although brokers also sell bonds, mutual funds and other investments). Stock brokers are now more commonly referred to as “investment advisors.” But in fact, most brokers or investment advisors are commissioned sales people who make investment recommendations that you can accept or reject.

  There’s nothing inherently wrong with this arrangement, of course. But it can introduce conflicts of interest that can influence your brokers’ recommendations, and you should be aware that this might not always work in your favour.

  For instance, your stock broker’s income is proportional to the frequency of your trading, but increased trading is likely to cost you money. Commission rates vary among investments, which gives brokers an incentive to sell the investments that pay the highest commissions. But a general rule is that the riskier an investment, the more commission a broker earns for selling it.

  In addition, stock brokers have no “fiduciary relationship” with their clients. They are not legally required to do what’s best for the client. They are just supposed to try to make sure that the securities they sell are “suitable” for their clients. “Suitable,” of course, can cover a wide range of desirable and not-quite-so-desirable securities.

Many people tell us that finding an advisor they can trust is one of the biggest problems they have with investing. That is one reason I offer personal portfolio management advice to a private group of investors, my Wealth Management clients.

You can have me build you a portfolio that’s tailored to your specific investment goals, temperament and financial situation. I’ll work to protect your money during times of market turbulence—and maximize your profits when the market rises.

You will be in very secure hands. We have an outstanding team of experts. They contribute an enormous amount of time and research to our Successful Investor Wealth Management service. But I personally approve every transaction in every portfolio. Your best interests and our best interests are one and the same. If you’d like to know more, just drop us an email. Click here to learn more about Successful Investor portfolio management services.

• Discount stock broker: Unlike full-service stock brokers, discount brokers simply carry out buy and sell orders for their clients, and charge lower commission rates than full-service brokers. You pay even lower commissions if you trade stocks online, instead of placing orders over the phone.

  The main drawback of using a discount broker is that it gives you unlimited opportunity to make costly mistakes on your own. In contrast, good full-service brokers will try to talk you out of bad ideas.

  Discount brokers are your best choice if you make your own investment decisions. Why pay extra for full service you don’t need or use? But if you use a discounter, you may want to secure outside sources of investment advice (such as our newsletters), if only to serve as a second opinion on your decisions.

• Portfolio Manager: Portfolio managers take a more active role than brokers. Instead of simply presenting you with investment advice that you can accept or reject, they generally make and carry out investment decisions for you, for a fee. Consequently, portfolio managers are more stringently regulated than full-service or discount brokers. In particular, portfolio managers must maintain a fiduciary relationship with their clients. Rather than simply choosing suitable investments, they must always try to do what’s best for the client.

  The best portfolio managers take pains to eliminate conflicts of interest between themselves and their clients. However, some portfolio managers rely on brokers to find clients. This can reintroduce conflicts of interest that you hoped to avoid by dealing with a portfolio manager instead of a broker.

NOTE: Successful Investor Wealth Management Inc., the portfolio-management affiliate of TSINetwork.ca and The Successful Investor Inc., does not rely on brokers to find prospects. Click here to learn more about Successful Investor portfolio management services.

COMMENTS PLEASE—Share your investment experience and opinions with fellow TSINetwork.ca members

How did you select the person through whom you were going to invest? By word of mouth, by doing your own research, or some other way? If you have had to switch advisors, did your results improve after you did so?

Note: This article was previously published on April 5, 2012.