What is an Investment Broker?
Investing is a great tool for wealth creation, but with everything it seems you need to know it can be incredibly overwhelming! Working with an investment broker can help alleviate some of the stress, but just what does that mean? What is an investment broker?
Brokers are individuals who are specifically licensed to make trades with securities exchanges. In order to make investments like buying or selling stocks, you need a broker. They serve as the bridge between you and the securities exchange—the marketplace where stocks, bonds, and other securities are bought and sold.
What Does an Investment Broker Do?
While a broker is necessary for buying, selling, and trading stocks, you can choose the level of service and support you want from your broker through either a full-service or discount broker.
A full-service investment broker generally works with a brokerage firm. They are trained and experienced in the stock market and committed to helping you invest your money to maximize earnings and save you time and stress. You can think of them as doing the “legwork” for you when it comes to investing. They watch the financial markets for you and keep up with the news to forecast potential market changes that might affect your portfolio. This level of service generally requires that you keep an account minimum, pay higher trading commissions, and pay a fee for account management. A full-service broker is generally best for someone with a larger portfolio they want managed by an expert.
Discount brokers are there to make the trades you order without offering any advice which leaves you to keep an eye on the market and adjust your portfolio accordingly. As a result, you’ll often pay little if any commission fees. If you don’t need advice, have a small portfolio, or buy and sell frequently you might benefit more from a discount broker.
How Much Do Brokers Cost?
Investment brokers usually charge per trade which can range from almost nothing to over $100 depending on how it is placed, the size of the trade, and the type of security being bought or sold. Some brokers will have complex fee structures that make it harder to figure out what you’ll be paying, so always read the fine print in the account agreement and fee summaries. Be sure to look for additional hidden fees such as custodial fees or fees for things like wiring or withdrawing funds, closing accounts, or transferring your assets.
How do you Choose an Investment Broker?
There are many different brokers and brokerage firms available which gives you the opportunity to choose the one that offers what you want. Now you’ll just have to narrow it down by the type of investing you want to do, how much you are willing or able to pay, and the type of broker you’ll feel most comfortable using. Then you can compare what you need to what each broker can offer.
Before opening any account, be sure to research the individual broker as well. Brokers must be registered with the Financial Industry Regulatory Authority, or FINRA, and you can research both individual brokers as well as brokerage firms on their website. You can find credentials, operations information, and employment data as well as any regulatory actions, arbitrations, or complaints.
The good news in working with an investment broker is that your first broker does not have to be your forever broker! When you are new to investing, it can be intimidating and working with a full-service broker might be just what you need to feel most comfortable starting your investment journey. Once you better understand investing, you can switch to a discount broker, save on broker fees and really take control of your money.