What Is the Role of a Stock Broker?

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After the profession took on a negative image in the 1980s and 1990s stock brokers prefer to call themselves "investment counselors" or "financial advisors," but the job is very similar. At its core, the role of the stock broker is to execute the demands of their client or, at most, to offer advice and participate in shaping a financial plan. But, because brokers are pressured to generate income and clients are seeking to benefit from an insider's perspective, and because the brokers themselves are paid higher commissions on riskier investments, there is a constant temptation to make recommendations that ideally, but not always, balance risk and profitability for all.

Function

  • The essential purpose of a stock broker is to buy and sell stocks, and usually also bonds, futures, mutual funds and other investments, which they usually do on behalf of clients. Because of their experience and expertise, however, stock brokers may be in the position to give investment advice, and others may be given permission by their clients to act on their behalf at their own discretion.

Features

  • Though stock brokers develop their own clients and contacts, most work as part of larger or smaller brokerage firms. Traditionally, all firms were full-service, meaning a client simply described their goals and the firm created and executed a strategy to meet those goals. Understandably, the commissions charged for doing so were quite high. With the explosion of the internet and electronic trading, discount brokerage firms have filled the niche of low-commission execution-only brokers, though most do offer client-specific research or advice for additional cost.

Considerations

  • The relationship between an investor and their broker is important. If working with a full-service broker, consider their past success and the recommendations of other clients. Be specific about goals and expectations. Many small to medium-sized investors increasingly choose to forego the cost of full-service brokerage and manage their own money in discount brokerage accounts, but this decision should be balanced by an individual's knowledge of markets and temperament in dealing with the high stress of money management.

Misconceptions

  • Even before the financial meltdown of 2008 and the public disclosure of the dubious roles that ratings agencies and banking executives played in the debacle, Wall Street as a whole enjoyed a less than ideal image among the public. Stock brokers in particular were linked with numerous scandals like account churning that produce commissions for the broker but little if any profit for the client. Nonetheless, the vast majority of brokers are highly trained and intelligent professionals who do honest work on behalf of millions of satisfied clients.

Benefits

  • Money markets have become an essential part of the modern world and the best service a broker can offer their client is access to the market. Whether an investor chooses to make their own buy and sell decisions through an online discount broker, or whether they prefer to utilize the vast expertise of a reputable firm to design a strategy to meet their financial needs, the ability to participate in one of the largest wealth-producing engines the world has ever known is an undeniable benefit, and the true role of stock brokers.

  • Photo Credit I. E. C. Haramis
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