Stockbroker
What Is a Stockbroker?
A stockbroker is a financial professional who executes orders in the market on
behalf of clients. A stockbroker may also be known as a registered
representative (RR) or an investment advisor.
Most stockbrokers work for a brokerage firm and handle transactions for a
number of individual and institutional customers. Stockbrokers are often paid on
a commission basis although compensation methods vary by employer.
Brokerage firms and broker-dealer companies are also sometimes referred to
generically as stockbrokers. These include both full-service brokers and discount
brokers, who execute trades but do not offer individualized investing advice.
Most online brokers are discount brokers, at least at their basic levels of service,
in which trades are executed for free or for a small set-price commission. Many
online brokers now offer premium-level services with higher fees.
KEY TAKEAWAYS
A stockbroker is a financial professional who buys and sells stocks at the
direction of clients.
Most buy and sell orders are now made through online discount brokers.
This automated process reduces fees.
Wealthy individuals and institutions continue to use full-service brokers,
who offer advice and portfolio management services as well as completing
transactions.
Understanding the Role of a Stockbroker
Buying or selling stocks requires access to one of the major exchanges such as
the New York Stock Exchange (NYSE) or the NASDAQ. To trade on these
exchanges you must be a member of the exchange or belong to a member firm.
Member firms and many of the individuals who work for them are licensed as
brokers or broker-dealers by the Financial Industry Regulatory Authority (FINRA).
While it is possible for an individual investor to buy stock shares directly from the
company that issues them, it is much simpler to work with a stockbroker.
Until recent years, it was prohibitively expensive to get access to the stock
markets. It was cost-effective only for high net-worth investors or for large
institutional investors, such as the managers of pension funds. They used full-
service brokers and could pay hundreds of dollars for executing a trade.
However, the rise of the internet and related advances in technology paved the
way for discount brokers to provide online services with cheap, fast, and
automated access to the markets. More recently, apps like Robinhood and SoFi
have catered to micro-investors, allowing even fractional share purchases. Most
accounts in the markets today are managed by the account owners and held by
discount brokers.
Stockbrokers in the 21st Century
Brokers who are employed by discount broker firms may work as over-the-phone
agents (known as voice brokers) available to answer brief questions, or as
branch officers in a physical location. They also may consult with clients
subscribing to premium tiers of the online broker.
A comparatively smaller number of stockbrokers work for investment banks or
specialized brokerage firms. These companies handle large and specialized
orders for institutional clients and high-net-worth individuals (HNWI).
Another recent development in broker services is the introduction
of roboadvisers, algorithmic investment management carried out via web or
mobile app interface. There is minimal individual interaction, keeping fees low.1
Mobile phone apps like Robinhood and SoFi cater to micro-investors, allowing
even fractional share purchases.
Educational Requirements for Stockbrokers
A bachelor's degree in finance or business administration is typically required for
stockbrokers. A strong understanding of financial laws and
regulations, accounting methods, principles of economics and currency, financial
planning, and financial forecasting all are useful for working in the field.
Global credentials are also becoming increasingly sought-after as signals of
legitimacy and financial acumen. Examples include the certified financial planner
(CFP) and chartered financial analyst (CFA) designations.
Most successful stockbrokers have exceptional interpersonal skills and are able
to maintain strong sales relationships-in addition to market knowledge and
investing skills.
Licensing Requirements for Stockbrokers
In the U.S., registered brokers must hold the FINRA Series 7 and Series 63 or 66
licenses, and be sponsored by a registered investment firm. Floor brokers in the
U.S. must also be members of the stock exchange where they work.2
In Canada, would-be stockbrokers should be currently employed by a brokerage
firm and are required to complete the Canadian Securities Course (CSC),
Conduct and Practices Handbook (CPH), and the 90-day Investment Advisor
Training Program (IATP).3
In Hong Kong, applicants must be working for a licensed brokerage firm and
pass three exams from the Hong Kong Securities Institute (HKSI). Those who
pass the exam must still be approved by the financial regulatory body to receive
a license.4
In Singapore, becoming a trading representative requires passing four exams,
Modules 1A, 5, 6, and 6A, administered by the Institute of Banking and Finance.
The Monetary Authority of Singapore (MAS) and the Singapore Exchange (SGX)
have licensing authority.5
In the United Kingdom, stockbroking is heavily regulated and brokers must
achieve qualifications from the Financial Conduct Authority (FCA). Precise
qualifications depend on the specific duties required of the broker as well as the
employer.6
Every country has its own credentialing requirements for stockbrokers.
What do stockbrokers do?
Stockbrokers serve as intermediaries between markets (e.g. exchanges) and the
investing public. Brokers take order from customers and try to fill them at the best
price possible. In return, they earn a fee known as a commission. Today, many
stockbrokers have transitioned to financial advisors or planners as online
brokerage platforms allow users to enter their own orders via the web or mobile
app.
What's the difference between a discount and full-service broker?
Traditionally, a discount broker would only engage in buying and selling on behalf
of customers, while a full-service broker would provide a broader breadth of
financial services such as research, advice, portfolio management, and so on.
Today, as online brokerages have forced commissions down to zero, discount
brokers have distinguished themselves by also providing research and other
services in addition to pure execution.
How much does a stockbroker make?
The median salary for a stockbroker in 2020 was $60,644, with an average range
of $40,000 up to $123,000.
