Free Trades at Full-Service Brokerages: They're Possible, but Are They Worth It?

Full-service brokerages such as Merrill Lynch, Wells Fargo, Morgan Stanley, UBS, and Smith Barney offer premium services to investors including stock recommendations, in-depth market research, and even tax preparation. However, such services come at a price, and that usually means trading fees in the range of a few hundred dollars. In contrast, discount brokerages such as E-Trade, Ameritrade, and ShareBuilder offer equity trades at prices that may be as low as one-twentieth of what the full-service brokerages charge. In light of such low prices, it's not surprising that many investors have chosen discount over full-service brokerages. On top of the low trading prices, discount brokers such as E-Trade offer stock reports, professional trading tools (for a small monthly fee), and even webinars.

However, some full-service brokers have fought back with deals of their own. Merrill Lynch, which is currently owned by Bank of America, offers investors $0 equity and/or ETF trades if they maintain a Merrill Edge self-directed investment account and maintain at least a $25,000 cash or deposit balance with either Merrill Edge or Bank of America. Investors must also maintain at least a $50,000 brokerage account if they wish to avoid being charged a $50 fee twice a year. Meanwhile, the $0 trade offer is good for up to 30 trades per month.

Wells Fargo also offers up to 100 free trades per year for customers who maintain at least a $25,000 balance with the firm in a PMA Package, but it counts brokerage accounts, credit card balances, loans, and even up to 10% of mortgages as part of that balance. Without the $25,000, however, a $25 monthly fee is charged.

Obviously, for current Bank of America or Wells Fargo customers, it makes sense to open a brokerage account with these full-service brokers. Likewise, investors who have a good deal of cash will certainly benefit from the more personalized service that a full-service brokerage provides. However, investors of modest means are still stuck with discount brokerages.

Interestingly, discount brokers have upped the ante and also lowered their already low trading fees. Just2Trade, for example, offers some of lowest priced trades on the market at $2.50.trade. ShareBuilder comes in at second place with $4.00 trades. And Zecco, a rather new firm, allows up to 40 free trades per month with a minimal account balance of $2,500.

Unfortunately, many discount brokers, although more affordable for the starting investor, also have their limitations. ShareBuilder does not offer every US-based stock, nor does it offer any internationally-based stocks. Just2Trade has a very "bare-bones" black trading screen. And Zecco offers almost no market research material, preferring the stock opinions of bloggers to Wall Street stock analysts.

In the end, investors must decide for themselves what broker format they prefer. For seasoned investors who simply want to make their trades, a discount broker may be the preferred choice. Investors who are leery of investing and want someone's expert opinion are probably better off with a full-service broker. Other investors may fall in-between, depending on their investing acumen and portfolio size.