Syndicate
The Discount Agencies
The stock exchange discount agencies live exclusively on the intermediation. They are different from the wire houses in that they only fulfill the orders that come from their clients with the corresponding paperwork and liquidation of the operations. In this case, the clients are in charge of researching and the analyzing of securities and therefore, for selecting their investments without help from the agency.
They do not articulate in Insurance Trade Unions that bring out new issues to the market. They do not have representatives dedicated to seek for customers. Their collegiate representatives receive a salary for receiving the orders that come by telephone and for confirming the execution. The management department is in charge of the paperwork and liquidation of the operation. At the beginning, the discount agencies exclusively executed stock exchange orders and carry through the operation charging a commission that was generally less than those charged by wire houses. Although even now, some agencies still keep doing this, it is important to emphasize that the discount activity of retail negotiations of securities present two branches: that of discount and that of deep discount, which includes the electronic contracting through the Internet).
The difference between these two modalities resides in the percentages of the commission that the agency charges.
There are only a few discount agencies that are important. Among them, there are fidelity, Charles Schwab and Quick and Reilly. These companies make important advertising of the extra services that other discount agencies run away from. Among these services there are the following: 24-hour attention, foreign currency market accounts from which one can write checks and use credit cards and the possibility of investing in not just shares, but also in options, mutual funds, debentures and bonds of public entities. To these services we must add another: the possibility clients have of making their orders through their personal computers.
These agencies also offer other additional services to be one step ahead of the competitors.
The deep discount agencies only execute orders and they exert themselves in doing it at the lowest prices. If well they can invest in mutual funds, shares and options, they are agencies in seek of the cheap, simple and fundamental in their operations.
One of the reasons of why these agencies can offer service at so low fees is because of their electronic system of in in-and-out orders towards different markets.
By general rule, the fees of the discount agencies are between one fourth and two thirds lower than those applied by the full service agencies.
Normally, the discount agencies commissions are estimated by the way of one of these two procedures:
- A percentage from the price of the share.
For example: If one sells 100 shares of ABC company at $20.50 each, one would pay, as commission concept, a percentage over the total amount of the sale: 100 shares at $20.50 x 1.1% of commission equals $22.55. - A sum in function of the number of shares.
For example: If one buys 100 shares (no matter the price) of ABC company, one would pay a fixed amount for each share. Let?s say, 20 cents per share. In this case, then, the commission would be of $20.