Flat-Fee Accounts

Physician's Money Digest, July31 2004, Volume 11, Issue 14

If you have a tidy sum of money in your brokerage account, you're likely toget an offer to move the cash into a flat-fee account. These accounts aren't any differentfrom a regular brokerage account, except that you get charged 0.5% to 2%of your assets every year instead of paying a commission on each trade youmake. Proponents say these accounts help eliminate churning (ie, when brokersmake trades just to generate commissions). But before you agree, get out yourcalculator. If you're an active trader, a flat-fee account can save you money, but ifyou're a buy-and-hold investor, the deal may be better for your broker than it is foryou. The National Association of Securities Dealers is looking into what it considersinappropriate sales of flat-fee accounts to investors who trade infrequently.