What is a stockbroker?
A stockbroker is a licensed professional with the authority to buy and sell stocks for other investors. Stockbrokers are regulated by the Securities and Exchange Commission (SEC) and are typically employed by a brokerage or a broker-dealer. Stockbrokers work on commission and usually receive a percentage of the trade’s value as their fee.
Stockbrokers fall into one of two categories: full-service brokers or discount brokers. The former offer a wide range of services, selling bonds, annuities, and insurance in addition to stocks. Merrill Lynch and Morgan Stanley are the leading full-service brokerages. Discount brokers offer fewer services and engage in higher volumes of trades. Charles Schwab and Fidelity are considered discount brokerages.
The Financial Industry Regulator Authority (FINRA) licenses and oversees the industry. FINRA’s official designation for a licensed stockbroker is “registered representative.”
Stockbrokers must pass FINRA’s General Securities Representative Exam, commonly known as the Series 7 exam, in order to become registered representatives. The Series 7 gives them the authority to sell common and preferred stocks, bonds, call and put options, and other securities, excluding commodities, futures, life insurance or real estate. After passing the exam, they must be associated with a registered broker-dealer, also called a brokerage firm or a wirehouse.
Many states require stockbrokers to pass a Uniform Securities Agent exam, for which they will be granted a Series 63 license. The exam measures the candidates’ understanding of state securities acts, regulations, ethical practices and fiduciary obligations. Many stockbrokers choose to earn other licenses that give them the ability to offer more services to their clients, including:
- Series 3 license to sell commodity futures contracts.
- Series 6 license to sell mutual funds, variable annuities and unit investment trusts
- Series 65 license to offer financial or investment advice or work with managed-money accounts.
- Series 66 license, which combines the Series 63 and Series 65 licenses.
A good stockbroker can help you make sound investments. Check out Bankrate’s investments calculators and see how you can improve your returns.
Both full-service and discount brokers are employees of their firms. The most talented full-service brokers work on commission and can receive 40 percent of the fees paid by clients, with the remaining 60 percent going to the firm; lower-performing brokers receive more like 35 percent to 25 percent of the split. How much money clients have in their brokerage accounts can also dictate how much attention they get from stockbrokers. With full-service firms, the accounts with more money receive much more attention from brokers. Discount brokerages typically leave much of the investing decisions to their clients and merely execute the trades the client wants to make.