A stockbroker usually earns money by receiving a commission on generated sales. However, most financial services firms place stockbroker trainees on salary initially, as they recognize that generating commission without having any clients in place would only set up trainees to fail. The salary a trainee can receive is usually minuscule compared to what an experienced stockbroker can earn.
Life of a Trainee
Usually, stockbroker trainees have never worked in the industry before and have to learn the business before they can become successful. During this probationary period, it is in both the firm's and the trainee's best interest for the trainee to succeed. As a result, most financial services firms have extensive training and education programs for new stockbroker trainees, during which time a salary is paid. By guaranteeing a paycheck to trainees, a firm helps prevent a new hire from feeling the need to garner large commissions from a small pool of clients, which can lead to bad financial recommendations and churning accounts.
Typical Starting Salaries
Since it costs money for a firm to train a new broker, often with little in return by way of commissions or fees, a firm will generally not pay a high salary to a broker trainee. The U.S. Bureau of Labor Statistics places the middle half of broker salaries at between about $40,000 and $122,000, so the average trainee will generally earn less than the low end of that range.
Series 7 Examination
Oftentimes, a financial services firm will only train a new hire and continue to pay him a salary if he passes the Series 7 exam. The Series 7 is the test that a broker must take to become licensed to sell stocks, bonds and other securities to the general public. Since a broker without a Series 7 cannot generate any revenue, most firms will let a trainee go if he does not pass the test.
Average Broker Salaries
After the probationary salary period, many firms will slowly phase out a trainee's salary and begin replacing it with commission. At this point, a broker is on his own in terms of being able to survive in the industry. While many brokers fail before they can generate enough commissions to survive, brokers that do make it in the industry can typically generate over $100,000 in commission income per year.