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What are the pros and cons of a discount brokerage (such as Wealthsimple, Robinhood, etc.) compared to a more established brokerage (such as TD WebBroker, etc.)?

Why do companies such as Wealthsimple charge so much less in commission fees than big banks? Is it because the banks can get you more favourable stock prices when making trades?

Edit: The answer to the question What's the differences between a discount broker and a regular broker?, while helpful, doesn't go into as much detail about the advantages and disadvantages as I'd (preferably) like. It mentions investment advice but is that the only advantage of an established brokerage?

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    Does this answer your question? What's the differences between a discount broker and a regular broker? – base64 Aug 29 at 11:59
  • @base64 Thank you. However, the answer the linked question doesn't go into as much detail about the advantages and disadvantages as I'd (preferably) like. It mentions investment advice but is that the only advantage of an established brokerage? – Jimmy Vailer Aug 29 at 20:13
  • The headline question says “established banks“ what the body of your question references establish brokers. Can you clarify so the question and the title are in sync? – JTP - Apologise to Monica Aug 30 at 20:01
  • There are still some mistaken assumptions in your question after your edit. Wealthsimple is not really a broker, Robinhood does not apply, TDDI IS a discount broker, basic bank investments are mutual funds. Wealthsimple charges more but in management fees. read finiki.org/wiki/Discount_brokerage and maybe finiki.org/wiki/Canadian_account_types – brian Aug 31 at 1:45
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Full service (commission) brokers provide more services than discount brokers. These include research, tax and retirement planning, investment advice, IPOs, managed money, and personal interaction.

Discount brokers offer low to no commissions and fewer services than a full service broker. They are for the self directed investor/trader.

There's a wide spectrum of offerings from both with some degree of overlap. For example, discount brokers offer annuities and managed money but these are usually less sophisticated products than offered by full service brokers.

Big banks do not get you more favorable stock prices when making trades. Orders are sent to a stock exchange and they are filled at prevailing prices.

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  • is their a category of brokerages that is in-between discount and full ? – puzzled Aug 29 at 21:04
  • It's more of a spectrum of services. On the lowest end you have brokers like Robinhood who offer almost nothing other than no commissions. Then in gradations you have discount brokers who incrementally offer additional services. For example, Vanguard charges no commissions but isn't merely a deep discount broker. And toward the top end you have investment banks who manage large sums of money for the wealthy. There's lots of overlap. Discount brokers can get you IPOs but you won't get many of the good ones there. Discounters offer managed money but might be low level, adjusted quarterly. – Bob Baerker Aug 29 at 22:18
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I am speculating that banks benefit more from the assets they have under management than from commission on trades. Banks will not get a more favorable stock price unless they are also acting as trader in the stock, in which case they will benefit from the spread.

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  • Thank you. However, if banks don't benefit as much from commission why are their commission fees higher than companies such as Wealthsimple and Robinhood? – Jimmy Vailer Aug 29 at 20:14
  • Interesting. I have the exact opposite, which is why I misunderstood the question. My transactions with Merrill are commission FREE except for options, which are $1.64 per trade. – Greg Harner Aug 30 at 8:50
  • Oh ok. I'm currently with a bank but I'm thinking of switching to a discount broker (such as Wealthsimple/Robinhood) and was interested about the pros and cons of each. – Jimmy Vailer Aug 30 at 9:46
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Wealthsimple is a robo-advisor that charges a percentage of assets. Basically a full fee financial advisor that uses computer models instead of humans to save money and charge lower fees.

Robinhood is a US broker unavailable in Canada. The no fee model is based on exchanges paying to fill your orders or internal matching.

TD Webbroker is not a broker but a trading platform of a discount broker now called TD Direct Investing. As a discount broker they can't give you trading advice and charge 9.95 or 6.95 per trade regardless of trade size. Most people go with a big bank broker out of simplicity since they already have a bank account. They are all almost identical.

AFAIK all brokers will get some payment for order flow and do some internal matching. This is supposed to be regulated to make sure you get the best available price at a given time.

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