To have success trading stocks, it’s important to know about the professionals who make up the financial industry. A stockbroker can be a great asset for helping clients make profits in the stock market.

To understand what a stockbroker does, it can be helpful to examine the following categories:

  • What is a stockbroker?
  • Education and licensing requirements to become a stockbroker
  • Skills of a stockbroker
  • The role of a stockbroker
  • Overview of stockbroker commissions
  • Locations where stockbrokers work
  • How to choose a stockbroker for yourself
  • Stockbrokers vs. day traders

What Is a Stockbroker?

A stockbroker is a professional who buys and sells securities and stocks on behalf of clients. Stockbrokers are authorized to carry out the sales through licensure from the United States Securities and Exchange Commission. They earn a commission of a varying percentage on each trade. A stockbroker also offers trading and financial advice to their clients, along with tips on when to make trades and which companies to invest in. For some clients, a stockbroker is their primary trusted financial adviser for investment and retirement portfolios.

Education and Licensing Requirements to Become a Stockbroker

Becoming a stockbroker involves steps in education, training, and experience. Generally speaking, a person who wants to become a stockbroker should have a bachelor’s degree in finance, accounting, business, or economics from an accredited university. A master’s degree, such as a Master’s in Business Administration (MBA) or Economics may be preferred or required to advance beyond a certain level. Many firms provide on-the-job training for college interns and entry-level stockbrokers.

Training and experience prepare a stockbroker to pass the General Securities Representative Exam, also known as the Series 7 exam, administered by the Financial Industry Regulatory Authority (FINA). Passing it and the separate Securities Industry Essentials Exam enables a stockbroker to buy and sell securities, and other exams may be required to sell more specific instruments such as bonds. A licensed brokerage firm needs to sponsor a stockbroker to take the exams.

Additionally, employment may also require a background check to determine if any criminal or financial improprieties exist.

Skills of a Stockbroker

Stockbrokers learn and develop a great deal of knowledge about how financial markets function and how external economic influences affect the national and global economy. They need to be able to read, interpret, and create financial reports. Good decision-making skills and the ability to work in a fast-paced and high-intensity environment bring success as a stockbroker.

Stockbrokers should have excellent communication skills to help clients understand complex concepts, along with personal marketing skills to attract new clients and distinguish themselves from other stockbrokers.

The Role of a Stockbroker

A stockbroker often serves clients in three ways: advisory, execution, and discretionary. An advisory role often means the broker offers advice on which investments the client should make and the ways to diversify their portfolio. An execution role means the broker carries out the trades on behalf of the client, and a discretionary role gives the broker permission to act on the client’s behalf for all investment decisions.

Stockbrokers may be employed at various levels of brokerage firms, with larger full-service firms offering support staff, educational opportunities, and a reputation level that speaks for itself. If a stockbroker feels like a small cog in a large machine at a huge investment bank, they might consider employment at a discount firm which may provide fewer perks but introduce the stockbroker to a wider range of research and client services.

Another option is working for a bank or credit union, where clients are likely to be bank customers with an existing relationship with the financial institution. This allows for a different approach to attracting customers and exposure to a different set of financial rules and regulations.

Overview of stockbroker commissions

Employing a stockbroker at any level will require the client to pay brokerage fees. There are a number of fees associated with holding investments:

  • Trade commissions are assessed whenever all kinds of stocks or other investments are bought and sold
  • Mutual fund transaction fees are assessed on the sale of mutual funds
  • Expense ratio refers to an annual fee assessed based on a percentage of a client’s holding of certain kinds of funds
  • Management fees are a percentage paid to the broker for investments under their care
  • 401(k) fees are assessed for the management of a 401(k) portfolio
  • Statements, opening and closing accounts, and research fees may also be part of a stockbroker’s commission

The fees will vary based on where the stockbroker works and the volume of trades on which they can collect fees. The customer pays the fees and commissions that generate the stockbroker’s income.

Locations where stockbrokers work

A stockbroker who works in New York City at the heart of the action of the New York Stock Exchange and NASDAQ can expect to have long hours and a hectic work life but reap the rewards of high commissions and many clients. Large brokerage firms all have offices full of stockbrokers at various levels, fighting for promotions with training and mentorship from those with more experience along with opportunities to further their education and become immersed in the culture of where the action happens.

If New York or other cities aren’t as appealing, stockbrokers can work at brokerage firms in large and small cities all across the United States, with less competition to fight for clients. Similarly, working for a local branch of a bank in cities and towns anywhere can give a stockbroker access to the clients who are looking for retirement investments and they can provide confidence and reassurance to clients while working more regular hours.

How to Choose a Stockbroker

Clients looking for an investment manager can consider the types of investments they want to make up their portfolio, and choose a stockbroker who specializes. For a client looking for a portfolio with a high return on investments, a typical broker at a large firm can help advise on the best balance between stocks, bonds, and funds, for example, and weigh and measure how to keep the greatest returns coming in over the long-term.

The client should decide if they want to give over the management to the stockbroker or if the client wants to research and provide input on how to fill up the portfolio. The customer who wants to be actively involved in the decision-making process should hire a broker with whom they can have a good relationship.

For a client who wants a lower-risk retirement investment portfolio, a broker at a bank can help fill the investment account with funds or CDs, for example, that require a lower level of management and lower fees. Most brokers have transparency with their fees, and clients who are looking to save money can choose from those with lower fees.

Most importantly, choosing a broker is a big decision. Clients place their trust in a broker to manage their financial health and future. Choosing a broker who represents well the client’s overall philosophy to risk, financial security, and reasons for investment in certain companies can lead to a good long-term relationship.

Stockbrokers vs. Day Traders

Some investors decide to go out on their own and use trading tools to buy and sell stocks themselves. While a stockbroker needs education, licensure, and the connection to a certified brokerage firm, a day trader can use online buying and selling tools to create their own portfolios. Raging Bull is one of these tools, with ebooks and webinars that can introduce ambitious investors to the kinds of stocks that can help them make the most money.

Though there is a learning curve to understanding all the ways the market fluctuates, taking advice from serious investment mentors can help day traders make money on penny stocks, biotech stocks, and up-and-coming companies that sit on the precipice of bringing their investors a good return.

Whether clients choose to use a stockbroker with experience and access to help manage their portfolio for fees or they choose to dive into buying and selling on their own, there is money to be made in the stock market.

Author: Jeff Williams

Jeff Williams is a full-time day trader with over 15 years experience. Thousands of entry-level and experienced traders alike – day-traders and swing-trade small cap stock traders – credit Jeff with guiding them to turning small accounts into big accounts.

Jeff’s "Small Account Challenge" shows people how to transform accounts from a few thousand dollars into $25k, $50k or even $100k.

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