Discount Brokers vs. Mutual Fund Companies

The beginning investor is often overwhelmed by the options available.

There are a number of places to open investment accounts, many of them providing do-it-yourself options.

Some of the more popular do-it-yourself accounts are found at discount brokers and mutual fund companies.

These financial services companies offer you the chance to invest with the help of research tools and with the help of platforms that allow you to execute your trades or set up recurring investments on your own.

While discount brokers and mutual fund companies offer overlapping investment choices, it is important to note that there are differences between the two. Here are some of the basics:

Discount Brokers

Ally Invest logoDiscount brokers offer limited investment services, allowing you to invest with lower commissions. Many discount brokers charge a flat fee for trades that you make.

Discount brokers often offer a limited selection of investment options, though. You may be limited to stocks, mutual funds, CDs, ETFs and other basic investment products.

Additionally, some of the research may not be as in-depth as what you would get at a mutual fund company. However, for most beginners, the research tools are sufficient.

You do have the option, with many discount brokers, to call and talk with a professional, but such sessions will cost you. The low-cost trades, plus the fact that, for beginners, the investment choices you do have are usually adequate, make discount brokers an appealing choice.

For the more advanced trader looking for complex investment options, or for the investor who trades frequently, a discount broker may be inadequate.

Popular discount brokers include Ally Invest, TD Ameritrade, and M1 Finance. See a full list of discount brokers.

Disclosure: All opinions expressed are our own. We are compensated by some of the businesses that we link to and review (e.g. TD Ameritrade).

Mutual Fund Companies

Mutual Fund Company FidelityMutual fund companies do have some self-service features.

It is important to note that when you work with a mutual fund company you are dealing with those who are more interested in providing full-service investment services. These companies exist mainly to encourage you to invest in the mutual funds that they put together.

Discount brokers offer you access to investment opportunities, but they do not normally put funds together. Mutual fund companies, on the other hand, often construct and manage the funds they offer.

You might need to have a much higher minimum deposit if you want to open an account.

Mutual fund companies may offer a wider variety of asset classes and opportunities, as well as more in-depth research.

Two of the most commonly used mutual fund companies, especially for beginners, are Fidelity and Vanguard.


When it comes to IRAs, though, there are more similarities than differences between discount brokers and mutual fund companies.

Many mutual fund companies offer IRAs with fees, commissions, minimums, and recurring deposit options that are similar to discount broker offerings.

If you like to keep your accounts together, though, and you plan to do a little trading with stocks as well as open an IRA, as a beginner it might be useful to choose a discount broker.

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  1. Avatar Richard Stooker says:

    Hi, Miranda,

    I’m amazed you consider the choices of “stocks, mutual funds, CDs, ETFs” to be “limited.” There are many thousands of those to choose from. And ETFs offer a wide number of ways to invest in commodities, foreign securities, bonds and currencies.

    Anyway, people should be thinking how to allocate their portfolio, not how many exotic investments to risk their money on.

    And mutual funds come with many more expenses than you’ve even hinted at. Granted, you don’t have the space to list them all in one blog post. Actively traded mutual funds cost people millions of dollars per not only in ordinary expenses, but in commissions, capital gains and in not keeping up with the market. On average, mutual fund managers don’t beat the market in the long run.

    You do mention Vanguard, which is about the only one that pays strict attention to minimizing expenses. With the others, you’re making some mutual fund manager big bucks with your hard earned dollars.

    I prefer buying income investments through my discount broker, but people could do a lot worse than start with Vanguard’s S&P 500 Index fund.

  2. I use TradeKing for my “short-term” portfolio, but TD Ameritrade won over my long-term account with their commission-free exchange-traded funds.

  3. I prefer TradeKing for the discount brokers, and Vanguard for the mutual house firms. But there are many great offerings from both discount brokers and mutual fund firms. It really comes down to investing style and needs.

  4. I’ve had a much more enjoyable experience with a discount broker (I mainly use Zecco now) than I have with mutual fund companies. I am very hands-on though, so that might be part of it.

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