What do stock broker do ?

Stockbrokers are financial salesman

There’s no way around it: The primary job of a stockbroker is to… well, act as the broker for the sale of stocks and other investments. A stockbroker works on behalf of an investment firm, generally earning a commission for selling stocks, bonds, and mutual funds to investors. (Stockbrokers who work at broker-dealers can and often do have the title “financial advisor” rather than “broker” or “stockbroker.”)

A stockbroker is to a broker-dealer what a broker or agent is to an insurance company. Just as you wouldn’t expect an insurance agent to send you to GEICO (GEICO doesn’t pay agents commissions like other insurance companies do), you shouldn’t expect a stockbroker at a broker-dealer to sell you a full range of products from other investment companies, either.

In that sense, the stockbroker’s most important job is to find people who have money to invest and convince them to buy the products he or she is selling.Commission-based compensation — Stockbrokers are generally compensated on commission, which means they earn money upfront when you buy or sell a specific type of investment. This contrasts with registered investment advisors, who generally charge clients a fee based on the amount they manage on the client’s behalf.

Conflicts of interest — Old-school stockbrokers work for a broker-dealer, which are subject to less onerous rules about the financial products they can sell to their customers. A broker-dealer can sell financial products to a customer so long as they are deemed to be “suitable” for the investor. A broker is not obligated to act in your best interest and may legally steer you toward products that generate higher commissions for himself and his firm.

Transactional relationship — A traditional broker generally has a transactional relationship with his or her clients. You might use a stockbroker to buy shares of stock or a fund, but you might not consult with them about all your investments (like a 401(k) that you have with your employer).

Commissions and conflicts are the hallmark of the traditional broker-dealer, and it’s one reason why stockbrokers are slowly disappearing. Though you can get a fair deal from a stockbroker, the reality is that they are paid on commission and typically sell just one company’s products, just like any other salesperson.

Sometimes, the commissions you pay a broker are clear and obvious. For example, if your broker charges $50 to place a stock trade — many brick-and-mortar brokers can charge even more than that — then you know you’ll pay $50 on top of what you pay for the stock.

Some commissions are less obvious. For example, some mutual funds carry what’s known as a sales load, which is deducted from the amount you invest to pay commissions. In an extreme case, you might decide to put $10,000 into a mutual fund recommended by your broker, of which $525 is deducted and paid to the brokerage firm, and $9,475 is put into the fund. Of course, there are many no-load funds out there, but brokers have financial incentives to sell funds with loads because they make more money doing it.

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