What is a stockbroker?

A stockbroker is a licensed investment provider that executes the trading of financial instruments such as stocks, bonds and funds on stock exchanges on behalf of individual or institutional clients. Trading directly on stock exchanges can only be done by member companies and the stockbrokers that work for them. 

Stockbrokers make money by charging clients commission for completing trades, either at a fixed rate or a percentage of the value of the transaction. They also charge fees for managing the portfolio accounts in which the assets are held. 

Stockbrokers have traditionally been qualified investment professionals who can also provide general or personalised investing advice and make decisions about how and when to invest for their clients. However, the industry is now increasingly moving towards automated Internet-based stockbrokers that execute trades for investors managing their own portfolios. 

Where have you heard of a stockbroker?

Stockbrokers are also known as wealth managers, financial planners, investment advisers, or registered representatives. As an investor, you are likely to be using services provided by a stockbroker, such as a professional account manager or an online brokerage account, to buy and sell your investment holdings. 

What do you need to know about a stockbroker?

Individual stockbrokers must be qualified by passing exams that are administered by the financial regulator in the country in which they operate, for example, the Financial Industry Regulatory Authority (FINRA) and North American Securities Administrators Association (NASAA) in the US and the Financial Conduct Authority (FCA) in the UK. These authorities issue the licences that stockbrokers need to be able to operate.

Professional stockbrokers typically work for wealth management companies, brokerage houses, investment firms, or their own investment businesses. They need to have detailed knowledge of the financial markets, share price movements, regulations, economics, currencies, modelling and forecasting to be able to effectively invest on behalf of their clients and provide investment advice. Brokers issue regular research notes for their clients to provide them with the latest information on individual stocks, industry sectors, commodities, currencies, government policies and regulations, and macroeconomic developments that may affect their investment decisions.        

Online stockbrokers are competing with traditional brokerage services for retail customers. Newer brokers have made waves in the industry by allowing individual investors to trade commission-free with low or no minimum account balances, making investing accessible to more people. These discount firms may provide some charting tools and data for investors to do their own research. 

Large institutional clients and high net-worth individuals still tend to use professional brokers to manage investment accounts on their behalf and provide tailored advice about their portfolios.   

When choosing how and where to invest your money, your first decision involves whether you want to use a traditional stockbroker or an online provider. You should also consider the commission charges, management fees, minimum account requirements and analytical tools or advisory services that the various brokerage firms offer.