What Is a Stockbroker?

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Updated on Tuesday, September 8, 2020

A stockbroker is someone who buys and sells stocks and other investment securities for a person or a company. They can also handle transactions for themselves.

To determine if someone is a broker, look at their day-to-day responsibilities. If they are involved in executing or handling securities transactions, they’re most likely a stockbroker.

What does a broker do?

A broker handles the transactions of securities – whether negotiation or execution – and receives a fee when the transaction is complete. A broker does their work on behalf of someone else, whether an individual, a firm or another business.

Brokers have a range of duties, including, but not limited to:

  • Serving as financial consultants
  • Aiding as investment advisors
  • Finding buyers and sellers for securities
  • Gauging investor interest in specific securities
  • Evaluating market securities in various products, including real estate, annuities and other securities
  • Facilitating transactions
  • Handling funds through securities transactions

Brokers can be individuals or brokerage firms. Firms have a wide range of services and staff, ranging from small boutiques to large operations. Many large banking institutions offer brokerage services. Bank of America, for instance, offers checking accounts and investing opportunities so all of your money is under one umbrella institution.

Brokers and dealers can act in tandem, often referred to as a “broker-dealer.” A broker-dealer buys and sells securities on behalf of a customer (broker) for their own benefit (dealer).

What fees do brokers charge?

Stockbroker fees vary based on the type of brokerage you choose. If you have a robo-advisor, for example, your fees will be much lower compared to someone who uses a human financial advisor and a full-service brokerage. You may face very different fees between the same type of brokerage firms, too.

Some of the best brokers don’t charge trading fees or have account minimums, giving you an easy way to start investing for a minimal cost.

Average Cost of Broker Fees in 2020
Fee TypeAverage Cost
Trading fees$0 to $10
Account (or annual) maintenance fees$0 to $50
Account closing or transfer$0 to $75
Paper statementsAbout $2 per statement
Wire transfer fees$15 to $30

You might see other types of fees, like sales load fees. Stockbrokers charge sales load fees based on sales commissions, and there are usually two types:

  • Front-end load:  Paid when you purchase a fund
  • Back-end load: Paid when you sell a fund

What you’re charged depends on the broker and account you select. You can choose a broker that doesn’t charge any stock trade fees: Robinhood, SoFi Invest, Fidelity and Charles Schwab are good examples. Other platforms may have a flat minimum annual fee, most often under 1%.

While this cost sounds low, it’s based on your investments. For example, 0.25% of $10,000 is $25 a year but for a $1 million balance, the yearly fee would be $2,500 a year. One million dollars is often the goal for many investors building a retirement fund, which means a few thousand dollars getting taken out every year can hurt your bottom line.

Sometimes broker fees are a percentage of a transaction, a flat fee or both. Having a financial advisor might cost you even more, too. Full-service brokers can charge anywhere from 1% to 2% of your assets under management.

Full service broker vs. discount broker

You’ll typically find two types of brokerages: discount and full-service.

A discount brokerage charges lower fees compared to full-service firms, but you’ll have to do more work yourself when it comes to choosing your own investments and researching companies. If you have or want to have investment knowledge and make your own decisions when it comes to managing your account, a discount brokerage might be enough for you. But if you need the extra help choosing the best investments at the right time for you, you may want to look into full-service firms.

A full-service brokerage charges more but you’ll get tailored advice, recommendations and investment opportunities based on your investment goals. Some brokers make a profit based on the securities or assets you invest in along with other various account management fees.

How are brokers regulated?

The SEC regulates brokers, dealers and broker-dealers. Registered broker-dealers must be a member of the Securities Investor Protection Corporation (SIPC), too. When your stockbroker is an SIPC member, it means you can get your cash and securities back during liquidation (up to $500,000). States have their own additional requirements for how broker-dealers register within the state.

Brokers have to complete various exams and certifications to register as a broker-dealer; it’s a pretty rigorous process. They have to file a Form BD, become a member of a self-regulatory organization (the Financial Industry Regulatory Authority or FINRA, for example), be a member of SIPC and follow any state requirements. Any additional people – like partners or employees – must also complete the necessary requirements.

Suitability obligation vs. fiduciary obligation

Financial professionals tend to operate under one of two standards: fiduciary or suitability. A fiduciary means an investment advisor is making trades and decisions regarding your investments that are in your best interest. Investment advisors can’t make a decision that earns them a higher commission but isn’t necessarily what’s best for you.

Suitability is what suits the client but isn’t necessarily a decision made in their best interest. Just because a recommendation is suitable for a client, doesn’t mean your stockbroker is a fiduciary. Suitable is like the minimum amount required; fiduciary is going above and beyond to meet your needs as an investor.

How to find a broker

Finding the best broker depends on your needs as an investor. Here are a few things to look out for:

  • No-fee trades: Many of the best brokers charge no fees or commissions for securities like ETFs and index funds.
  • No account minimum: If you don’t have a lot of money to open an account but want to start investing, find a broker that doesn’t have an account minimum requirement.
  • Research and education: When you’re handling your own investments and trades, you’ll want to find a company that has investing reports, analysis and advice from some of the best investment research firms.
  • Customer service and access to experts: Most of the top brokerages have around-the-clock customer support and the opportunity to talk to financial advisors (usually for an upcharge). Beginners may need the assistance, so strong customer support might be a priority.
  • Easily accessible: If you want to make trades wherever you are, find firms that have a strong user experience on web and mobile app.

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