Broker Check

Stock Broker

A stockbroker goes by many names, including registered representative (RR) and investment advisor. Most stockbrokers work as part of a brokerage firm and may execute orders on behalf of institutional or individual customers. Stockbrokers offer managed money services and can inform or complete the purchase and sale of stocks. How stockbrokers work varies in each state, so it's crucial to familiarize yourself with local requirements.

How Is a Stock Broker Paid?

Stockbrokers traditionally have offered commission based services, but the market has various compensation methods. The latest and greatest is called “managed money”. The employer and scope of brokerage services will determine how much a stockbroker will earn. Other factors like experience and investment profile influence compensation, especially if the stockbroker is paid per service.

a) Managed Funds Brokers
In managed money brokerage, the client makes a contract with a manager to pay a percentage equal to the value of their account, paid every quarter. There are two main types; single asset managed funds and mixed/multi-sector managed funds.

b) Commission Based Brokers
Stockbrokers can make money via commission when the investor agrees with the broker to pay them every time a sale and/or purchase is made. These brokers execute stock purchase decisions on behalf of the client with the client's approval. The commission charged varies based on many factors, including the employer, broker's experience/position, and more. Many stockbrokers today offer commission based services.

c) Per Service Brokers
Stockbrokers can charge a fee for specific services or bundled activities. A full-service brokerage firm offers more than mere buying and selling of stock. These stockbrokers can review investment portfolios, offer professional financial advice, give direction on best investments, and more. Discount stockbrokers offer transaction assistance only, so there is no expert investment advice. Such brokers may charge less for their services.

How Do You Evaluate A Stock Broker?

Working with a full-service stockbroker is crucial when looking to invest huge amounts. New investors are also better off with full-service brokerage firms. So how do you identify the best stockbroker? It starts with identifying your investment goals and needs and researching the brokers who can help. Here are four tips for evaluating a broker before hiring their services:

1. Choose a Protected Broker
It's crucial to work with trained, licensed, and experienced stockbrokers with profound knowledge in the trade. You need to review the stockbroker summary for credibility. Determine if the brokerage is a member of credible trusts, like SIPC, FINRA, and FDIC. You should also check the insurance, protection against fraud, online security, and account protection.

2. Commissions, Minimums & Fees
Investors should review the commissions on all options they plan to purchase. It's crucial for determining if the investment is worth the risk. Account minimums and fees are also important figures that determine investment viability. Before choosing a stockbroker, you should ask more questions about the investment requirements, return, and everything in between. In today’s investment world, many brokerage firms require that a description of fees be sent by mail or email before opening the accounts.

3. Offering and Execution
Brokerage accounts have unique offerings, and every investor has one that best suits their needs. Full-service brokerage firms provide standard taxable investment accounts, retirement accounts, and other offerings. Investors should thoroughly review the pricing and execution fine print to avoid unnecessary costs and risks.

4. Education, Tools & Features
The tools and features accessible to your broker can be the difference between success and growth or stagnation. Investors need to review existing trading tools, features, and learning options to gain more insight into the brokerage process. The best brokers offer simple yet sophisticated tools to improve communication, analytics, and decision-making. One example is a government approved texting software program to provide a record of conversations between the broker and the investor.

Can A Broker Sell My Shares Without My Permission?

Brokers don't usually sell shares owned by a client without proper permission from the client unless it's acceptable under the terms. There's no selling with discretion regarding stock brokerage, and such concerns don't come up when working with trustworthy brokers. You need brokers with open communication channels and robust trading platforms.

The broker will generally request permission to sell shares, but some terms of services feature discretionary conditions when a broker can execute a sale without permission. Discuss with your stockbroker and seek clarity for any doubts and unclear terms. Unless you deem it necessary, you shouldn't accommodate any terms that allow brokers to sell discreetly.

Working with a Professional Advisor

Working with a Professional Advisor

Stock brokerage is a complex trade and requires networking and round-the-clock monitoring. Working with a professional stockbroker lessens the work needed to start investing and trading without much background knowledge. Don't navigate the difficult process alone. Work with a professional to find out more about stocks and how to trade profitably.