How to Buy Stocks Without a Broker
While there is no doubt that the most popular way to buy and sell investments is by opening a brokerage account, many new investors ask how to buy stocks without a broker. Direct investing offers some advantages and disadvantages, which you will need to assess based on your circumstances and preferences. The goal here is to provide you with an overview that helps you decide for yourself whether buying stocks without a broker is the right approach for you.
Direct Stock Purchase Plans
Often the easiest method of buying stocks without a broker is by participating in a company's direct stock purchase plan (DSPP). These plans were originally conceived generations ago as a way for businesses to let smaller investors buy ownership directly from the company. Most of the current plans allow investors to buy stocks without a broker if they agree to either have a reasonable amount taken out of their checking or savings account regularly (usually a minimum of $50 every month) or make a sizable one-time purchase (often $250 or $500).
Ordinarily, the plan administrators batch the cash from those participating in the direct stock purchase plan and use it to buy shares of the company, either on the open market or freshly issued from the business itself, on predetermined dates. The average cost of the purchases is weighed out, or some other methodology is used to equalize the cost among investors with the stock allocated to the account of each owner. Just as you get a statement from the bank, the direct stock purchase plan issues statements, in most cases every quarter, with a listing of the number of shares you own, any dividends you have received, and any purchases or sales you have made.
Some direct stock purchase plans execute trades commission-free. Others charge small transaction fees—frequently $1 or $2 plus a few cents per share for each purchase and a larger fee (perhaps $15 plus a few cents per share) for a sale. Traditionally, these fees were a lot lower than what you would pay at a full-service broker, though the 21st century has seen intense competition among brokerage firms. Mobile apps began offering commission-free trading, and, throughout 2019, major firms like Fidelity and Charles Schwab followed suit and dropped their fees for basic trades.
Dividend Reinvestment Plans
The next best way to buy stocks without a broker is to enroll in a stock's dividend reinvestment plan (DRIP). These plans allow you to take cash dividends paid out by the company you own and use them to buy more shares. Depending on the specifics of the plan, you will be charged either nominal fees or nothing at all. For long-term holders of a typical stock that pays out a dividend four times a year, the plan allows for many commission-free transactions over 25 or 50 years.
In the United States, some brokers traditionally reinvest dividends in certain issues at no cost for clients. If you are fortunate enough to have such an arrangement, buying stocks without a broker does not have as much appeal.
Dividend reinvestment plans are often coupled with cash investment options that resemble direct stock purchase plans. In turn, you can regularly withdraw money from your bank accounts or send in one-time payments whenever you want. Many long-term investors have become adept at building wealth through the use of these types of plans.
Other Specialty Accounts
Up until recently, you could use companies that allowed you to buy a single share of stock to get your name on a corporate shareholder list, then enroll in closed direct stock purchase plans or dividend reinvestment plans. Unfortunately, in light of the financial industry's decision to move away from paper stock certificates, this has become all but untenable.
Other specialty accounts do exist, but they may be more accessible by investors with more wealth. If an investor has a relationship with an asset management company, they could probably get the Registered Investment Advisor (RIA) to have one of the firm's institutional brokers place a trade on their behalf and have the trade transferred as a gift to a child or family member through the Direct Registration System (DRS). As a result, the child or family member would be able to buy stock without a broker in that particular business.
The Balance does not provide tax, investment, or financial services and advice. The information is being presented without consideration of the investment objectives, risk tolerance or financial circumstances of any specific investor and might not be suitable for all investors. Past performance is not indicative of future results. Investing involves risk including the possible loss of principal.