A stockbroker is a financial professional that serves as an intermediary between investors and the financial markets. They execute buy and sell orders on behalf of clients, attempting to find the best price possible. And in exchange for this service, charge a small commission fee.
Today, a stockbroker is a more specialised position than in the past, with many transitioning into the role of a financial planner or investment adviser. With online trading platforms and investment accounts granting retail investors easy access to the markets, demand for personal stockbrokers has largely diminished.
However, many brokerage firms still provide a phone-in service where investors can ask general questions. And for institutional or high-net-worth investors seeking to execute large transactions, a broker is still often required.
Most stockbrokers are employed at a brokerage firm. But their duties can range beyond simply executing trades. Full-service brokerage firms often provide research services to advise clients about prospective profitable investments, as well as tax advice and consultations, among other premium financial services.
Over time, as stockbrokers develop a deeper relationship with their clients, they can help design and guide investors along an appropriate investment strategy to meet specified goals. This often includes making suggestions as to which stocks or mutual funds to add to their investment portfolio.
Types of brokerage accounts
Brokerage accounts are also known as investment accounts. And each one hires a different type of stockbroker to serve investors using them based on their needs.
There are two main types of stock brokerage firms:
- Discount Broker – This is the most common and popular type of brokerage firm. A discount stockbroker executes trades on behalf of an individual investor. They don’t provide any advice or investing support services. In the past, investors would call a discount broker over the phone to execute a trade. Today, the innovation of online trading platforms has almost entirely automated this process making the financial markets far more accessible to investors, including those with only small sums of capital to invest.
- Full-Service Broker – While less popular, full-service brokers provide investors with the ability to execute trades as well as a host of additional services. These typically include personalised investment advice, research, financial planning, tax advice, estate planning, and retirement planning. Investors using a full-service brokerage firm are paired with a personal stockbroker who handles everything. While full-service brokers provide many conveniences, they also charge significantly higher fees than discount brokers.
How to choose a stockbroker?
A stockbroker can provide valuable insights and analysis about profitable investment options. But not every individual investor needs one to achieve their investment goals. With that in mind, what factors should investors consider when choosing what type of broker is needed?
- Account Fees – Every brokerage account charges fees in exchange for their services. It’s essential to compare the costs of different brokerage accounts to find the cheapest suitable option.
- Available Securities – Not every brokerage house provides the same level of access to different financial markets. Suppose a British investor wants to trade stocks on the US financial markets. In that case, they will need an account that provides access to American exchanges.
- Account Features – Each investment account offers a different suite of tools and features. Investors need to determine what services they will need to execute their investment strategy and compare accounts that provide such services. For example, investors may want to place stop-loss orders, while traders may want to buy financial options.
- Customer Reviews – Regardless of how cheap or feature-complete a brokerage firm might seem, it could be a moot point if the customer service is dreadful. Stockbrokers are ultimately investors’ partners on their investing journey. And being stuck with a brokerage firm that doesn’t provide high-quality customer service could create a lot of headaches later down the line. This is especially critical when exploring tax-efficient accounts like a Stocks and Shares ISA since transferring to a new broker can be a complex process.
The bottom line
The role of a stockbroker has changed drastically in the last 50 years. The days of large rooms packed with financiers screaming down the phone are long gone as technology improves the speed, efficiency, and cost of investing in the financial markets.
But they still provide a critical service. And investors need to consider the flexibility and limitations when selecting a stockbroker carefully.
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This article contains general educational information only. It does not take into account the personal financial situation of the reader. Tax treatment is dependent on individual circumstances that may change in the future, and this article does not constitute any form of tax advice. Before committing to any investment decision, an investor must consider their individual financial circumstances and reach out to an independent financial advisor if necessary.