Brokers

stockbroker

What is a stockbroker?

Stockbrokers are financial professionals who execute orders in the market on behalf of their clients. A stockbroker may also be called a registered representative (RR) or investment advisor.

Most stockbrokers work for brokerage firms and process trades for many individual and institutional clients. Although compensation varies by employer, stockbrokers are usually paid on a commission basis.

Brokerage firms and broker-owned firms are also sometimes collectively referred to as stockbrokers. These include full-service brokers and discount brokers who execute trades but do not provide personalized investment advice.

Most online brokers are discount brokers, at least at their basic service level, where trades are executed for free or charge a small fixed-price commission. Many online brokers now offer premium services for a higher fee.

key takeaways

  • Stockbrokers are financial professionals who buy and sell stocks according to their clients’ instructions.
  • Most buy and sell orders are now placed through online discount brokers. This automated process reduces expenses.
  • Wealthy individuals and institutions continue to use full-service brokers who provide advice and portfolio management services and close deals.

Understand the role of a stockbroker

Buying or selling shares requires visiting one of the major exchanges, such as the New York Stock Exchange (NYSE) or Nasdaq. To trade on these exchanges, you must be a member of the exchange or belong to a member company. Member firms and many of the individuals who work for them are licensed by the Financial Industry Regulatory Authority (FINRA) as a broker or broker-dealer.

While individual investors can buy stock directly from the company that issued the stock, it is much simpler to work with a stockbroker.

Until recent years, the cost of entering the stock market was prohibitive. It is only cost-effective for high net worth investors or large institutional investors such as managers of pension funds. They use full-service brokers and can pay hundreds of dollars to execute trades.

However, the rise of the Internet and related technological advancements have paved the way for discount brokers to offer cheap, fast and automatic market entry online. More recently, apps like Robinhood and SoFi have catered to micro investors, even allowing the purchase of some stocks. Most accounts on the market today are managed by the account owner and held by a discount broker.

21st century stockbroker

Brokers employed by discount brokerage firms can act as telephone agents (called voice brokers) to answer brief questions, or serve as branch officers at brick-and-mortar locations. They can also consult clients who subscribe to the premium level of the online broker.

Relatively few stockbrokers work for investment banks or professional brokerage firms. These firms process large and professional orders for institutional clients and high net worth individuals (HNWI).

Another recent development in brokerage services is the introduction of robo-advisors, algorithmic investment management through a web or mobile application interface. There is little personal interaction and the fee is low.

Mobile apps like Robinhood and SoFi cater to small investors, even allowing fractional shares to be bought.

Education Requirements for Stock Brokers

Stockbrokers usually require a bachelor’s degree in finance or business administration. A solid understanding of financial laws and regulations, accounting methods, principles of economics and currency, financial planning and financial forecasting are all very useful for working in this field.

Global certificates are also gaining popularity as a signal of legitimacy and financial acumen. Examples include Certified Financial Planner (CFP) and Chartered Financial Analyst (CFA) designations.

Most successful stockbrokers have excellent interpersonal skills and the ability to maintain strong sales relationships in addition to market knowledge and investment skills.

Licensing Requirements for Stock Brokers

In the United States, registered brokers must hold a FINRA Series 7 and Series 63 or 66 license and be sponsored by a registered investment firm. Floor brokers in the United States must also be members of the stock exchange where they work.

In Canada, potential stockbrokers should be currently employed by a brokerage firm and must complete the Canadian Securities Course (CSC), the Conduct and Practice Handbook (CPH), and the 90-day Investment Adviser Training Program (IATP).

In Hong Kong, applicants must work for a licensed brokerage firm and pass three examinations by the Hong Kong Securities Institute (HKSI). Those who pass the exam still have to be approved by the financial regulator to be granted a license.

In Singapore, becoming a trade representative requires passing four exams administered by the School of Banking and Finance, namely Modules 1A, 5, 6 and 6A. Licensed by the Monetary Authority of Singapore (MAS) and Singapore Exchange (SGX).

In the UK, stockbroking is strictly regulated and brokers must be licensed by the Financial Conduct Authority (FCA). The exact qualifications depend on the specific duties required by the broker and employer.

Each country has its own certification requirements for stockbrokers.

What does a stockbroker do?

A stockbroker acts as an intermediary between the market (such as an exchange) and the investing public. Brokers take orders from clients and try to fulfill them at the best price. In return, they earn fees called commissions. Today, many stockbrokers have transformed into financial advisors or planners, as online brokerage platforms allow users to enter their own orders via the web or mobile applications.

What is the difference between a discount and a full-service broker?

Traditionally, discount brokers would only buy and sell on behalf of clients, whereas full-service brokers would provide a wider range of financial services such as research, advice, portfolio management, and more. Today, with online brokers cutting commissions to zero, discount brokers stand out by offering research and other services in addition to pure execution.

How Much Do Stock Brokers Make?

The median salary for stockbrokers in 2020 is $60,644, with an average range of $40,000 to $123,000.

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