Archive for December, 2009
A Student Discount Card (Student Advantage):
It’s been several years since I was living in a dorm room and studying for exams. I remember my college days fondly, but I have a sneaking suspicion that I would’ve been even happier if Student Advantage cards had been available back then.
Here’s how it works:
- If you qualify for a Student Advantage card (you need be an enrolled college student or an employee/faculty member of a qualified institution of higher learning), you can pay $20 to get a discount card. You can sign up for a multi-year card at a cheaper per year rate.
- You can present that card any of the participating retailers and service providers who recognize the card in order to secure discounts on purchases.
That’s not very complicated is it?
Is it a Good Deal?
The simple way the card and the arrangement works makes it pretty easy to figure out if spending $20 for an account is worthwhile.
If you can save more than $20, you’re doing well for yourself.
If you’re saving less than $20 over the course of the year on purchases you’d be making otherwise, it’s not a good deal.
So, will you save more than $20 by buying a card?
In fact, many people will save much, much, much (please note: I only use “much” three times in a row when I really mean it) more tha twenty bucks.
There are two reasons for that. Lets look at them individually.
The Student Advantage Card has a Great Lineup!
First, Student Advantage is aligned with a seriously impressive list of retailers. Their main web page shows a handful of the “big boys,” but if you dig deeper and uncover the full list of participating partners, you’ll find deals ranging from discounts on underwear to rebates on office supplies.
And these aren’t “oh, I think I heard of them once” retailers, either. We’re talking about companies like Target, Foot Locker, AMC Theaters, Office Depot, Pearle Vision and T-Mobile.
That’s what really separates this discount cards from other options. Instead of collecting a list of joints nobody knows and with whom nobody would really shop, they’ve cut discount deals with real stores that people frequent on a regular basis.
That makes it easy to recoup the minimal investment. One example of this is the fact that you can get the customer rewards pricing at Barnes & Noble bookstores without ponying up the $25 it would take to become a member. In other words, your $20 Student Advantage card automatically qualifies you for a $25 value–and that status can save you well over $25 if you regularly shop with B&N.
I’ll be honest. I don’t remember the spending habits of my student years that well. And that’s not because of the binge drinking (well, not exclusively). It’s just been a few years. However, I can’t imagine that college students don’t buy books, go to movies, shop at Target or have cell phones with major providers like T-Mobile and Verizon. Even if card members never set foot in a Hanes store and could resist the tasty allure of Godiva chocolates, I have no doubt that they’d save well over $20 per year without changing their usual buying habits one bit.
The great partner lineup makes a winner of this student discount card. Student Advantage is doing things the right way.
But that’s only half of the story…
A Serious Student Discount Card: Student Advantage Helps with Big Ticket Items..
It’s one thing to save 10% on your underwear purchase at a Hanes outlet. It’s another to get massive discounts on extremely expensive purchases.
The 10% off deals with some retailers and other smaller discounts will justify the purchase of a card over time. The fact that the Student Advantage card offers hefty bargains on larger purposes will make it a winning investment instantly.
The big one in this department is the ability to save a whopping 15% on Amtrak tickets. If you live in an area where train travel is common and efficient, you would be absolutely crazy not to purchase a Student Advantage card.
A commenter on a blog post about Student Advantage illustrates this quite clearly:
I’ve only used my card once, and I used it to buy train tickets to visit my friend this summer. I saved like $35 or something like that, which was nice, because altogether, the price was close to $300.
That’s one use of the card and it put fifteen bucks in her pocket. If she uses the train four times per year, that’s a savings of 300% more than the card’s purchase price.
Student Advantage provides bargain access to the John Candy Trinity (trains, planes and automobiles). You can get discounts when you buy airline tickets from Orbitz and Cheap Tickets. You can get car rental discounts from Alamo.
Then it goes an extra step. You can save on your Greyhound Bus fares, too.
Those are bigger-ticket purchases and even one-time card use can more than cover the cost of being a Student Advantage membership.
Is There Any Reason NOT to Get This Student Discount Card?
Student Advantage looks like a clear winner to me. I can’t really think of a reason not to plunk down $20 for the discount opportunity if you’re eligible.
I suppose there are people who don’t utilize any of the long list of partner retailers (check out the aforementioned big ol’ list here). I suppose some of those people may not use trains, planes, automobiles or buses.
If you’re one of those three people, don’t get the card.
If you’re part of the 99.99% who can easily make back $20 via the student discount card, sign up now.
Once upon a time…
We didn’t have options like WTDirect. Back in the dark ages (a few years ago), most of us set up savings accounts in a similar manner. We’d walk into our favored branch of our local bank and we’d say, “I’d like to open a savings account.” We’d fill out a form, we’d fund the account, and they’d hand us one of those cute little passbooks.
End of story.
While that seemed like a wonderful system, it really was more than slightly flawed.
We weren’t shopping for the best interest rate. Our regular bank might not have been an ideal choice.
Even if we did go rate shopping, we limited our investigation to banks in our immediate physical vicinity. Again, that limited our chances to get the best returns, customer service and account options.
The only perks we’d receive for opening the account were cheap bank calendars. Well, you might get a free toaster if you were funding an account in a major way, but those were reserved for high-rollers.
The Internet expands our options…
Today, you’d be a sucker to set up your savings accounts the way we once did. Technological developments allow us to reach out to banks all over the place, giving us a shot at more features, more flexibility and higher interest rates. That access has resulted in more competition between banks. In turn, that’s led to better accounts.
Now, we can choose between several different high-yield savings accounts we can administer via the Internet. It makes saving easier and more profitable.
All of that progress does create a challenge, however. We have to determine which of the many available savings options are really worthy of cour consideration.
WTDirect may not be the most well-known web-accessible high-yield savings accounts, but it does seem to be growing in stature and popularity. It’s definitely a player in the field. Today, I want to provide you with a handy overview of WTDirect. Hopefully, this information will help you to decide if you’d like to open an account there.
The “WT” in “WTDirect” stands for Wilmington Trust, FSB. That’s the bank that handles these accounts. They’ve been around for a whopping 100+ years and they’re a wholly legitimate and stable financial institute.
WTDirect clears the first hurdle of account acceptability easily. It’s a legitimate savings account with a real-life bank you can trust. You’re not going to lose your dough overnight and if, for some crazy reason, Wilmington Trust finds itself in collapse, your funds are FDIC insured.
What makes WTDirect different or interesting?
Let’s be honest. The difference between one savings account and another is usually fairly marginal. It’s not as if you’re going to see radically different products as you review your options. WTDirect isn’t doing anything you haven’t seen somewhere else. It’s a savings account, not a new Cirque de Soleil production.
That being said, there are a few reasons to appreciate their account.
- There’s no minimum account balance.
- They pride themselves on personal customer attention. If you call them, you talk to a real staffer who should be able to help you.
- They provide very competitive account interest rates. In fact, they usually offer rates well above those associated with other savings account options.
- They won’t reduce interest rates on high balance accounts.
- They offer higher transfer limits than many other banks.
- They frequently have exceptional offers in order to attract new customers.
What are other people saying about WTDirect?
I’m not the first person to examine this high-yield savings account provider. Others have weighed in on WTDirect. You might be interested to know what they had to say.
MoneyNing gave WTDirect a rave review, stating:
I didn’t think I would say this but my great experience with customer support have won many points for this bank. Coupled with having one of the highest interest rates, WTDirect is one of the best banks out there for my circumstances.
Bible Money Matters echoes those sentiments, concluding:
At the time that I wrote this, WT Direct currently offers some of the highest interest rates in the country and their accounts are FDIC insured (to find current updated rates, go here). Add to that their solid financial history and great customer support, you have a solid bank offering. If you’re looking for a good high yield savings account where you can put your money, I think WT Direct should be near the top of your list.
CashMoneyLife gave WTD direct 9 out of 10 possible stars in its review, noting:
Overall, I would give the WTDirect Savings Account a 9 out of 10. The pluses are some of the highest interest rates in the country, strong capitalization, solid online security, excellent customer service, and an intuitive user interface.
All in all, it looks like Wilmington Trust’s high-yield account is a winner. Before you shift your savings you should know one thing, though…
There is a (slight) catch…
The main reason you’d want to use an account like WTDirect’s is because it offers you a shot at much higher interest rate than you’d find at your local bank. That’s what makes up for the lack of a free toaster and an excuse to get a free cup of coffee and a lollipop, right?
Well, WTDirect does offer much better rates on your savings when you open the account. For the first 60 days, in fact, you’ll receive their top rate (the one they advertise). After that trial window closes, you’ll only hit that mark if you have more than $10,000 with them. If your balance falls under that mark, you’ll earn interest at a slightly lower rate.
That’s a set of circumstances common to most high-yield accounts. You get the big rate when you sign up but you need to feed the kitty if you want to keep it. As such, it’s not a reason to avoid the bank. It’s just something you should know.
MoneyBlueBook explains that the two-tiered interest system isn’t a death knell for WTDirect and why those of us who may not be ready to toss ten grand in Wilmington Trust’s direction right off the bat should still consider opening an account:
WT Direct’s top interest rate has historically and consistently ranked in the top 5% of all banks in the U.S., and the hassle free experience and fairly extensive customer support have been well touted by editorial commentators. While the tiered interest rate system of the WT Direct savings account after the initial 2 month trial period may appear as a downside to many smaller deposit holders, the bank account offers numerous benefits, features, and promotional bonus perks that still merit serious consideration.
The bottom line on WTDirect…
Flexible account options. Good customer service. Highly competitive interest rates. A stable bank. No toaster.
You can set up a new account ($1 minimum balance) in a matter of minutes by visiting WTDirect.
Fingerhut. Depending on who you are and how old you are, the very mention of the name conjures up one of many specific images.
I remember the Fingerhut catalogs of the 1970s. They weren’t as thick or interesting as the Christmas catalog from Sears or the even glossier one from Penney’s. The merchandise selection was limited and not much, if any, of its contents appealed to a kid.
My mom liked it, though. They sold those latch hook rug kits (hey, I told you it was the 1970s) and she’d order the patterns and the stubby little bundles of yarn you used to make them. Fingerhut would send them, along with a payment book.
That book consisted of a dozen little slips of paper. Each of them had a payment amount printed on it, along with the Fingerhut mailing address and the buyer’s account in formation. Once a month, when my folks gathered around the kitchen table to “do the bills,” they’d take out the booklet, tear off the page, attach a check for the amount and send it off to good ol’ Fingerhut.
A little research confirmed that memory. Those payment books divided the total price of the items purchased (and an interest payment) by twelve. You had a year to pay off your balance. It was old school closed end credit.
That’s the Fingerhut I remember.
“In the old days, retailing would have a lot of layaway plans and the local store credit. All those things disappeared over time. And what Fingerhut provided was that access, that credit.”
A Minnesota Public Radio report that details some of the struggles the company faced during a transitionary period in the 1990s includes comments from Rafael Saldana, who was once Fingerhut’s manager of Hispanic Business. He explained the role the closed credit system once played:
Eventually, Fingerhut went through some changes. They were bought out be a larger retail outlet and started focusing more on online endeavors and order fulfillment responsibilities. They were still mailing out those catalogs, but they were different, too.
The latch hook rugs and the ugly orange 1970s yarn faded from the front to the back to obsolescence. The catalog got a little beefier and started featuring electronic items, baby gear, jewelry and all of the other product lines you’d find in a department store.
The biggest change was probably the elimination of the old Fingerhut closed credit system. They started issuing Fingerhut credit cards and set up revolving accounts.
The aforementioned MPR report will tell you that people weren’t necessarily pleased with the changes. Old customers started running up bigger bills and people questioned the new ownership’s decision to change the way business had long been successfully conducted.
THINGS STAY THE SAME
Even though Fingerhut did switch to the revolving credit system, like most other retailers, they didn’t change one aspect of the way they conducted their business. As Rafael Saldana noted, Fingerhut had also made a point of extending credit to those who may not have access otherwise.
That’s something they’re still doing.
Fingerhut extends credit to people who otherwise couldn’t get a credit card. Their standards are set intentionally low. They even make a point of trumpeting the fact that they “Often say, ‘YES’ when others say, ‘NO’”.
They do more business online these days, but they do sell a little bit of everything and they sell it on credit to people with surprisingly low credit scores. They’re the retail equivalent of a sub-prime lender.
NOT QUITE CRAZY
At face value, this strategy might seem a little crazy. Why would you let people who have a strong risk of defaulting on their purchases buy on credit? Why would you do that with lower-priced consumer goods that can’t meaningfully secure the debt?
Well, it’s not quite as crazy as you think. Fingerhut seems to have a plan.
They charge a nice, hefty interest rate to make up for the risk.
They build some of the risk into their business model by charging a bit more than you’d expect for the items they sell.
Much of Fingerhut’s inventory consists of second-tier brands and non-name brand items.
Fingerhut positions themselves as a means of accessing credit for those with limited opportunities. They undoubtedly hope their “last chance” lender status will encourage people to maintain their accounts responsibly and that they’ll be utilized by those interested in credit repair or establishing good credit histories.
SHOULD YOU BE A FINGERHUT CUSTOMER?
I’ll be frank. Most of us probably shouldn’t become Fingerhut customers. The prices aren’t great (although they do offer some nice sales and online coupon codes) and the product line isn’t any more impressive than what you’d find at a K-Mart.
Plus, based on what I can tell, they don’t even sell those ugly latch hook rugs anymore!
Does that mean that no one should be a Fingerhut buyer? Not necessarily.
The one thing Fingerhut has going for it is its willingness to extend credit where others won’t. That’s even more impressive in today’s credit line-cutting marketplace.
That makes the company uniquely valuable to a certain sub-set of the population:
People who want to build a credit history on the cheap. You could apply for a Fingerhut card, make an occasional inexpensive purchase when items go on sale, pay the bill promptly and develop some credit history. The fact that approval is likely and the fact that it’s easier to resist running up a Fingerhut card than it is a Visa or Mastercard–or a locally available physical store, for that matter–creates one reasonable scenario.
People who believe that a card will help them repair their credit. I belong to the school of thought that believes the best way to deal wit a lousy credit score is to pay everything off and to then avoid credit purchases whenever possible. I’d be reluctant to tell anyone who reaches the point that they can only qualify for Fingerhut credit to even think about becoming an active borrower. Not everyone feels that way, though. Those who think that limited responsible use can help boost credit scores may want to recommend applying for a Fingerhut card.
You really like the stuff they sell and you’d like to buy some of it. I’ve been pretty harsh in my criticism of Fingerhut’s inventory and that might not be completely fair. Different people like different things and have different views of what constitutes quality. You can see that wide-ranging difference of opinion reflected in the side range of reviews Fingerhut receives online. If you like what the company sells, feel free to become a customer. I don’t see why that would justify an application for a Fingerhut card, however.
SOMEWHERE IN THE MIDDLE…
People who can’t get credit anywhere else can often qualify for a Fingerhut card. You can view that as a creepy, predatory business practice or you can see it as a commitment to providing credit opportunities to those who’d otherwise be frozen out.
People get Fingerhut products and use them. You can see that as a reflection of the company’s offerings and as proof that people are responsibly using their cards for smart purposes. Or, you can imagine a bunch of people who should be saving their money mortgaging their future for second-rate consumer goods.
The truth of the matter probably falls somewhere in the middle of that mess.
I can’t say that I would recommend anyone to apply for Fingerhut credit. I’d understand their motivation if they did, however.
I know it can be very tempting to tap into your 401(k) especially if you are feeling a little tight in the budget. As best as you can you should resist this temptation because doing this comes with penalties. However every withdrawal doesn’t come with penalties, here are some possible exceptions:
- Medical expenses by you, your spouse or any other dependent
- To cover the purchase of a primary residence(can’t be your summer home)
- All tuition related costs, which includes books and room and board
- To cover the cost of being evicted or to prevent foreclosure on your home
- Funeral expenses(including your own)
- Some home repair expenses(be careful here)
Under normal circumstances you can start taking withdrawals penalty free when you reach age 59 ½, however there are some additional circumstances when you can even take withdrawals penalty free as early as age 55. Please refer to the document here for more information on that.
So you now decide that you must withdraw money and it doesn’t fit into one of the above categories then it is considered a hardship withdrawal. Let’s look at what that will actually cost you.
The first cost is that you lose the long term compounding effect of your money and that can be significant. Let’s say you are 35 years old and you plan to retire at 60. You currently have $50,000 in your 401(k) and you have an issue requiring a $20,000 withdrawal. Your current salary is $75,000 per year. You contribute 10% to your 401(k) annually and your company matches 4%. Finally we are assuming a 8% rate of return and 3% annual raises. If you didn’t take the withdrawal and left your money alone you would have approximately 1.38 million available at retirement. On the other hand if you did take the withdrawal you will have approximately 1.24 million. That $20,000 withdrawal will actually cost you close to $140,000 in retirement money. Unfortunately for many people they can’t fathom numbers like this and the price of doing this gets lost in our got to have it now society. However any way you look at it that is a lot of money. By the way this is the website I used to calculate those numbers.
Secondly there are penalties that must be paid as well. The first penalty is an early withdrawal penalty which is equal to 10% of the amount of the withdrawal. So in our example that penalty would equal $2000. It doesn’t stop there because Uncle Sam needs his piece of the pie so you will pay federal income tax on the amount you withdrew. In our example you would probably be in at least a 30% tax bracket which means additional taxes of $6000 on your withdrawal. Finally Mr. State has to put his hand in the pot as well and you have to pay state taxes. Let’s assume 6% which means another $1200.
So when you add up the grand total that $20,000 hardship withdrawal will actually wind up costing you about $150,000 in lost income taxes and penalties. I know you are still thinking is it worth it. I guess the real answer to that question is what do you need the money for? Once you answer that question then you have to think is this really worth $150,000.
When it comes to rating auto insurance companies there are few different factors that go into that rating. I happen to have my personal favorite insurance company, I’ll tell you at the end of this post, but let’s look at the factors. Using probably one of the most respected names in this industry JD Power and Associates I will give you their criteria for ranking insurance companies.
Overall Satisfaction – How satisfied are the customers.
Contacting the Insurer – This is based on the experience when you have to call the insurance company
Policy Offerings – The variety of coverages available
Billing and Payment – The timeliness and accuracy of billing statements
Price – The cost of the policy
According to these criteria they came up with a ranking list and found that the winner in their contest was Amica Mutual. Feel free to visit their site to read all about it.
Well that’s JD Power’s rankings but here are the most important things to me when I search for an auto insurance company. They are price, timeliness of paying claims and customer service.
When it comes to insurance for most people I know the biggest factor is price. The way I view insurance is that it is something you have but hopefully never need to use. Because of that if I can get quality coverage at a reasonable price then I am usually satisfied. Obviously the company should be financially stable and you can check AM Best to see that but if they are then that is fine.
The second factor is timeliness to pay claims. You really don’t learn about an insurance company when you are purchasing coverage because that is not when you need them, you really learn about them when you have an accident and need help. How do they respond to you in your time of need? After price this is the one factor that will make me switch from one company to another if they are not quick in paying claims or if they are slow to evaluate my car or approve repairs. I don’t like nit-picky insurance companies that want to nickel and dime you to death over repairs needed for your car when it has been in an accident. I used to work at Enterprise Rent-A-Car and there were some insurance companies that took forever to pay or send out adjusters to look at vehicles, I stay away from those.
Finally there is customer service. The truth is no one ever really feels good about buying insurance, they just know it is a necessary event. However if the company can treat you right when you need them then that can keep me loyal to them.
In my mind there is such a fine line between one company and another that it is hard to separate them. If you look at TV you know the big insurers like GEICO, Allstate and Progressive. There are also plenty of regional carriers that may provide better service and rates for you. If you ever look at these commercials and how auto insurance is marketed the overriding factor is how much money you can save by switching from one to the other. This simply means that price is the overriding factor again. So to answer what are the top rated insurance companies, in my book the ones where you can get the most coverage at the best price. With that thought I promised I would mention my personal favorite and that is Response Insurance.
Here are some other ideas on the topic:
So why are teenagers being charged sky high rates to get auto insurance? Well the reality is there are a number of factors that go into determining premiums. Auto insurance as is all insurance is really all about the determination of risk. For auto insurance the question insurance companies ask is what is the probability that this driver will get into an accident? Accidents mean the insurance company has to pay claims and they want to limit that as much as possible.
In regards to auto insurance drivers get grouped into categories from high risk to low risk and the young 16 year old male is the highest possible risk, followed closely by the young 16 year old female. Insurance companies put these drivers in this category for a few reasons the first is the lack of experience behind the wheel. Have you ever driven with someone who just got their license? That’s not exactly a very comfortable experience. Also teenagers, especially males, are prone to be influenced by their environment which can impact the way they drive. Whether it’s friends in the car or the need for speed these things impact driving behavior. I remember being young and foolish and racing my cousin down a somewhat crowded highway at 95 miles per hour. I don’t know who won but what an adrenaline rush. I look back on that and realize how stupid that was. One wrong move and I could have killed myself and maybe others with me. At the time though I was young and invincible, which is a terrible mindset to take behind the wheel of a car.
All is not lost on the cost of insurance, there are some things that can be done to lower premiums. Now these things won’t bring them all the way down because they are still in the high risk category but a few dollars saved here or there can add up over time.
1 – Consider the type of vehicle they will drive – Obviously a souped up sports car in the hands of a teenager is like a blind man trying to land an airplane, that is an accident waiting to happen. Insurance companies recognize this and they will make you pay dearly for this. Consider getting a safer, older family sedan and this will save you some money on the premium.
2 – Shop Around – The internet makes it possible to get rate quotes from various insurance companies. Look around and see which company provides the best possible option for you and your teenager. Sometimes it may mean having to switch companies but if the savings are worth it consider the option.
3 – Encourage good grades in school - Some insurance companies offer a good student discount. Usually you would need a B average or higher to qualify. Insurance companies that offer this look at good students as responsible and are willing to reward these drivers with discounts sometimes up to 10% on the premium.
4 – Have your child take driver’s education – Again insurance companies look at these drivers as more responsible. Even though they are still high risk they are not as high a risk as the teenager without driver’s ed. The result of this is a reduced premium. Always remember anytime you can lower the perceived risk you lower your insurance premiums.
Any way you slice it having teenagers drivers in your house will cost you more money. The best you can hope to do is get that premium as low as possible and encourage responsible driving on behalf of your teenager. As they demonstrate they are a lower risk you will begin to see your premiums go down.
Related Articles and Blog Posts:
If you are like most parents you are probably a bit nervous about your child getting behind the wheel of the car. In addition to their safety you are worried about the increased cost of them driving. Insuring a car with a 16 year old driver on the policy has the potential to be a very costly proposition. Premiums tend to increase dramatically just by adding little Johnny on to the policy. 16 year olds are not allowed to enter into insurance contracts on their own so they either need a parent’s signature on the policy or the parent can add them on the family policy. What is the impact on insurance premiums? Let’s look at some examples:
I went on the website carinsurance.com and I became a single father with full coverage on a vehicle. By full coverage I mean collision & comprehensive with a $5oo deductible, $100,000/$300,000liability, $25,000 personal damage, rental car coverage and towing services. Since my home state is New York and I live in NYC, I decided to use that as the barometer. The quote I received was a premium of $844 for 6 months.
When I added a 16 year old additional driver on the policy, the premium on that same policy jumped to $1832 for the same six months. That represents a 217% difference in premium for the exact same coverage. As an interesting comparison I changed the 16 year old from a male to a female and the premium dropped from $1832 to $1688, which is only a 200% increase. Obviously boys cost more than girls when it comes to auto insurance.
In playing with these numbers I decided to see what would happen if I purchased my child their own vehicle and then insured them on the policy. This represented the most dramatic jump. The premium for the female jumped to $2486 a 295% increase over the regular premium, and the premium for the male came back at $2552 with one quote as high as $4663 which represents a 303% and unreal 552% increase over the regular premium.
What does all of this mean? Quite obviously, it is very expensive to have your kids driving. I know New York City has some of the highest insurance rates in the country however the percentages will usually remain the same regardless of where you are located. I found some articles regarding this issue:
So where does this leave you as a parent. Well in NYC the need for a car for a teenager isn’t as great because we have around the clock public transportation after all we are the city that never sleeps. However that still doesn’t solve the problem and this is a problem. As a parent taking on the extra financial responsibility may become burdensome, because you may be talking about and extra $200 per month added to the budget, let alone the extra money spent on gas and vehicle maintenance. Well my son is only 6 now so I have some time, but if he were 16 and wanted to drive I would have to give him a simple 3 word answer to make this possible, get a job.
In a recent post talking about agents and brokers, I forgot to mention the area of financial investing. If you have an IRA account, a 401(k) at your job, or have some experience playing the stock market game then you may be familiar with using brokers. Much like an insurance broker the financial broker works as an agent on your behalf, trading stocks, bonds or other financial instruments with the goal of helping you make the most money possible or doing what is in your best interest. A good broker should not have a vested interest in the commodities they are trading for you. They are supposed to be neutral and should work at your discretion. They must be licensed and registered with the Securities and Exchange Commission (SEC).
With the thousands of brokers out there and because it is your money choosing a broker is not only important but critical to your financial health. If you ever watched the movie Boiler Room you see what can happen if you get tied up with a shady broker. How do you guard against this? One of the ways is to use FINRA Broker Check. To best describe what they do I will take a quote right off of their website. “BrokerCheck is a free tool to help investors research the professional backgrounds of current and former FINRA-registered brokerage firms and brokers. It should be the first resource investors turn to when choosing whether to do business or continue to do business with a particular broker or brokerage firm.”
I decided to check out the brokerage firm that I currently have my IRA account with. To begin a search all you do is put in the name of the broker or brokerage firm. You do have to agree to the terms and conditions and then hit enter. The first page that pops up will give you some general information about the particular firm or broker such as the profile, history and whether they are currently suspended with any regulator. It was refreshing to know that my firm is not currently suspended with any regulator. From there you can drill deeper and get a more detailed report so that’s what I did.
Well when they say detailed report they didn’t lie. I now had a 108 page report in front of me all about my brokerage firm. In this report you will get detailed listings of the owners of the company and much more information about the history and operations. What was of particular interest to me were the sections talking about arbitration awards, disciplinary and regulatory events. I looked closely at this section just to get an idea if there was any previous shady action going on that would concern me. Though there were some events on the list there was nothing there that really was of great concern. Most were very minor things that could even fall under the category of “misunderstandings” between the broker and the customer. Overall I was satisfied and glad to know that my IRA and other investments are being housed with a reputable firm. In a way I am glad because if they weren’t then I would have to find another brokerage house which I wasn’t really thinking about doing right now. However if I did have to find another one at least I know where to go to get all of the information on the new firm.
On the surface these two functions seem to be very similar and in some ways they are. First of all the area most people will encounter agents or brokers are when they are buying a house or buying insurance. In both of these worlds they function very differently, let’s look at the two.
When you think about real estate there really isn’t a whole lot of difference in the way your experience would be when dealing with an agent or broker. An agent is someone who is licensed and can help you with all of the steps you would need to purchase a home. From showing the home to helping you reach a deal with the seller. Also if you are considering selling your home the agent can help you do that as well. So what’s the difference?
A broker has more schooling than an agent and actually holds a different license than the agent. A broker’s license requires more additional coursework and thus requires the broker to assume some additional responsibilities. A broker has the ability to open an independent real estate office and he can have agents working underneath him. In fact an agent has to work underneath a broker in a real estate office. The broker is ultimately responsible to make sure that the transaction that happens goes through properly. Because brokers are responsible for agents and completing transactions they do receive override commissions on the work of the agents. I guess the simplest comparison is a manager to sales rep relationship.
In insurance this is completely different. An insurance agent has the ability to get contracted to sell insurance on behalf of an insurance company. He can be a captive agent, which means he is working for one insurance company or he can be a non-captive agent which means he is contracted with several insurance companies. When I sold health insurance I was a non-captive agent and I was contracted with about 5-6 different companies. As an agent I was an independent contractor. Generally speaking captive agents are usually employees of the companies they sell for. The main difference is that the non-captive agent can give you more choices that hopefully will fit your budget and your circumstances. As an agent you are required to obtain licensing in the states you wish to work in. I was actually licensed in 4 states. I had the ability to bind insurance coverage which basically means that I could legally obligate the insurance company to provide coverage according to the terms and conditions as bound. Unlike in real estate, I could’ve hired other agents to work underneath me, which I didn’t do, without securing any additional licenses. Also unlike real estate I didn’t have to work underneath a broker to sell insurance.
A broker on the other hand doesn’t work for the insurance company and cannot bind insurance. The broker really works for the person who is looking for insurance. In short order, the broker works for you. Their job is to find out all of your needs and to approach insurance companies on your behalf to get quotes and to find the best possible policy for you and your situation. A broker can only work on your behalf with your written consent and in exchange for their services they will earn a commission once a new policy is issued. To sum it up an agent works on behalf of the company, the broker works on your behalf. I have included some simple articles below that answer this question as well.
Real Estate 101 – The difference between an agent and a broker
Insurance Agent or Broker: Which Should I use and What is the difference?
What’s the difference between an Agent, Salesperson, Realtor®, and a Broker?
Here are some Blog Carnivals that we participated in over the last few weeks. Enjoy!
- Carnival of Personal Finance #235 (The Cinderalla Edition) was hosted by Well-Heeled with a Mission and you can find our post entitled 15 years, A Few Thousand Dollars and a Lesson on Passive Income listed there.
- Tammy: After being injured during a robbery then cancer I fell a month behind but called them, sent documents and...
- Ana: How on earth are people spending so little on food? My husband and I spend an average of $1000 on groceries. It...
- Bill Johnston: For Mac I strongly recommend to use iBank or Quicken with Numeric Notes.
- Will: I started rolling my own and found that the technology is a lot better than when I was a lot younger. The...
- James: I pay 8$ for two big loads+ free drying. I do laundry once a month or twice. my sisters bill went up by 150$...
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