Stockbrokers 101

What does a stockbroker do?

A stockbroker is someone who is licensed to buy and sell investments, including stocks, bonds and mutual funds, on behalf of an investor. Since individual investors can’t directly access the stock market, a broker helps facilitate the process by executing trades on behalf of their clients. Essentially, the broker acts as a go-between for the investor and the stock market.
With the rise of online trading platforms and apps like Robinhood and E*TRADE, investors may never talk to an actual stockbroker. But if you ever need advice or input from an investment or financial adviser, stockbrokers also offer guidance. For example, a stockbroker might suggest which stocks to buy or sell based on market conditions.

Stockbroker vs. brokerage

Brokerages are firms or companies that are licensed to execute trades. Stockbrokers are employed by those brokerages to execute trades on behalf of their clients.

Online or offline

Whether a broker is online or offline depends in part on how easy it is to contact when you need them. Many high-end wealth management firms and hedge funds can be called offline brokers because you’ll need to contact them directly to execute a transaction. You’ll get more personalized service, but it may slow down your transaction time.
On the other hand, with online brokers you generally only need an Internet connection to make a transactions in a matter of seconds. Even traditional brokers like Vanguard and Fidelity have online tools and services these days, blurring any distinction.

What is a full-service broker?

Brokerage companies typically come in three varieties: full-service brokerages, discount brokerages and robo-advisors.
Full-service brokerages employ stockbrokers to execute trades and provide advice for brokerage clients. Discount brokerages are generally online platforms that allow investors to apply for their own brokerage accounts and execute trades independently. Robo-advisors are automated investment platforms for passive investors who want their portfolios managed by an algorithm-driven electronic service.
Investors that want the guidance and expertise of a licensed trading professional may prefer to open an account at a full-service brokerage. Investors that want more control over the investment process may prefer a discount or online brokerage that allows them to place orders for their own trades.

Types of brokerages

These days, there’s a brokerage for every type of investor. And the list continues to expand.

Discount brokers/platforms

Discount brokers are best for beginner investors and DIY traders who aren’t seeking any advice. Here are some of our top picks.

Robo-advisors that do it all for you

If you want to hand off investment management to an advanced algorithm, try a robo-advisor. A robo-advisor recommends a diversified portfolio based on your individual investment goals and risk tolerance.
From there, an advanced algorithm manages and rebalances your portfolio. Here are some of our top picks.

Brokerage platforms that offer access to advisers

If you’re a high-net-worth individual seeking holistic wealth management through financial advisers, consider these full-service brokerage firms.

CFPs for financial planning beyond investing

If you want wide-reaching financial planning advice, but you’re not high-net-worth, consider hiring a certified financial planner (CFP). A CFP can help you meet financial goals like paying off debt, planning for retirement and saving for your child’s college education. Many work on an hourly basis.
And while pretty much anyone can take on the title “financial planner,” CFPs are held to a higher standard. As fiduciaries, CFPs are obligated to provide advice solely in your best interest. This means they’re not allowed to get any kickbacks for recommending one product over another.Back to top

How do I find the right broker?

Narrow down your options by:

• Selecting a brokerage type. Full-service brokerages are a solid option for those who prefer the in-person guidance and expertise of a stockbroker. For investors prepared to execute their own orders, online brokerages and robo-advisors stand at the ready.
• Picking your market. The market you plan to invest in impacts the brokerages available for you to choose from. Most US brokerages offer access to the NYSE and Nasdaq, but platforms that offer access to international markets — like Fidelity and Zacks Trade — are few and far between.
• Deciding what you’d like to invest in. Do you plan to trade stocks or would you like to explore the crypto market? Brokerages vary in the assets they have available for trade, so make sure your broker offers access to what you plan to invest in.
• Checking fees. Keep an eye out for account management fees, trading commissions, transfer fees and currency conversion costs.
• Comparing research tools. If opting for an online brokerage, review the platform’s research and analysis tools. Less experienced investors won’t need the same type of sophisticated research tools advanced traders require.

What are the license requirements for becoming a stockbroker?

All stockbrokers in the US must be licensed by the Financial Industry Regulatory Authority (FINRA) in order to practice. But before taking the mandatory tests to receive a license, you typically need to be sponsored by a broker and complete a minimum of four months of employment.
Most stockbrokers hold a four-year degree in accounting, math, finance, banking, economics or business. Some even acquire an MBA or Master of Science in Finance. While post-secondary education isn’t required to take a FINRA exam, education, training and experience can help you pass.
There are two tests you must take to become a licensed stockbroker: the Series 7 exam and the Series 63 exam. The Series 7 exam covers investment basics and Securities and Exchange Commission (SEC) regulations.
The Series 63 exam, also called the Uniform Securities Agents State Law Examination, covers the principles of transaction law and state securities regulations. Not all states require stockbrokers to take the Series 63 — residents of Colorado, the District of Columbia, Florida, Louisiana, Maryland, New Jersey and Ohio only need to pass the Series 7 exam. Back to top

How do stock brokers make money?

The following conditions determine how much a broker is paid:

• Commission. This is the primary source of income for brokers. A commission is given to the broker every time you trade through them. The more you trade, the more you pay.
• Referral bonuses. Sometimes brokers will encourage and recommend specific stocks to invest in. The brokers receive a referral bonus if you decide to invest in that product.
• Broker fees. Calling a broker for advice or to make a transaction will cost you.

The average salary of a broker is $71,720, but this varies based on the broker’s experience level and the commission they receive.

Bottom line

Finding the right stockbroker can mean spending less and making trades that are best for your investment strategy. A brokerage can help you manage your portfolio and set practical investment goals. Review your brokerage account options with multiple providers to find the platform best suited to your investment needs.

Frequently asked questions

What kinds of securities can I buy online?
Buy almost any type of stock, bond or mutual fund online.
What’s the difference between a cash account and a margin account?
Customers who pay in full for the cost of the securities purchased use cash accounts. Customers who are authorized to borrow part of an investment’s total purchase cost from their brokerage firm use margin accounts.