The most basic types of bonds are: US government securities, treasury securities, municipal bonds, corporate bonds, mortgage and asset-backed securities, federal agency securities and foreign government bonds. All bonds must be bought through a Bond Broker with the exception of Treasury securities that can be bought directly from the government.
A Bond Broker is:
A Bond Broker is an individual licensed by the National Association of Securities Dealers to buy and sell bonds for investors. A Bond Broker will generally work for a brokerage firm, but may also work independently. A Bond Broker brings together the right bond with the right investor. The Bond Broker will work with you to determine your investment goals and will find investments that can meet those goals. Bond Brokers obtain bonds either from the inventory of their brokerage firm or from a network of bond dealers and traders that sell and resell bonds.
You will more than likely work with an individual Bond Broker if you elect to buy bonds through a full-service broker or discount broker. Online brokers will generally not offer you the services of a dedicated Bond Broker. In effect, you will be required to research and find the bonds you wish to purchase then request that the broker place an order for you. Discount brokers and online brokers will save you money in terms of commissions paid, however the bond market is a complicated arena and without specific knowledge and understanding of the bond market, individual investors can quickly become involved in investments far riskier than they had anticipated.
Evaluating Your Choices
A Bond Broker can be very valuable to your wealth-building goals. However, you may not be comfortable with the fees and commissions associated with full-service (and sometimes discount) brokerage services. Or, you may feel you are capable of doing the research to make your own investment choices. Whether you choose an individual Bond Broker or a bond brokerage, here are some things to look at to help you evaluate your choices:
- If choosing a Bond Broker they must have the education and experience necessary to guide you. This means they must be credentialed and a proven success in the bond field. You can check a potential Bond Broker's background via the NASD.
- Bond Broker, full-service, discount or online; do they have the bonds you are interested in? Do your research so you know what type of bonds you are interested in, then make sure your brokerage has the ability to sell them to you.
- Check the brokerage firm's history of regulatory compliance. Both the NASD and the US Securities and Exchange Commission (IAPD) have information regarding compliance.
- Find out what the transaction and account fees will be. You need to know what type of commission will be charged, what the minimum investments will be, if there will be any account maintenance fees etc. Be aware that when a brokerage goes to a dealer to buy a bond for your purchase, a mark up will generally be added to the price as a type of commission that goes to the Bond Broker or to the brokerage firm.
By MS Kauffman
