TYPE OF BROKERS IN THE MARKET
A broker is an individual or firm responsible for the execution of buy and sell orders that an investor submits. Most of the type, a broker also pertains to the role of a firm when it serves as an agent for the customer and asks the customer for a commission or charge.
Before, only richest could afford the services of a broker and therefore access the stock market. But when internet technology flourished, it also triggered an explosion in the number of discount brokers.
This allows investors the ability to trade at lower costs, though such brokers do not provide personalized advice. Because of the boom of discount brokers, almost anyone can begin investing in the stock market.
Discount and Full Brokers
Discount brokers are those that can execute any type of trade on behalf of a client. These brokers charge a reduced commission in the range of $5 to $15 each trade. The low fee structure that they sport is based on the volume and lower costs.
Discount brokers, however, do not offer any investment advice. In addition, the brokers are usually paid in salary instead of commission. Meanwhile, in most cases, discount brokers offer a kind of online trading platform, which appeals to a growing number of investors.
On the flip side, there are full service brokers. These brokers, as their name suggest, practically offer all the services a broker can offer, from investment advice to market research and retirement planning. These things come on top of a full range of investment products, of course.
A growing number of brokers are now offering fee-based investment products, such as managed investment accounts.
Regulation of Brokers
Brokers are registered with the Financial Regulatory Authority, or FINRA, which stands as the broker-dealers’ self-regulatory body.
While they are serving their clients, brokers are being held to a standard of conduct the foundation of which is the suitability rule.
The suitability rule requires that broker to have reasonable grounds for recommending a specific product or investment. The rule has the KYC, or ‘know your customer,’ policy, which addresses the system of due diligence that a broker must use to determine the reasonable grounds of the recommendation.
In essence, the broker is responsible for doing reasonable effort to acquire information which will be used in making a recommendation.
His standard of conduct is very much different from the standard that is applied to financial advisors that are registered with the Securities and Exchange Commission (SEC) as Registered Investment Advisors, or RIA. Under the Investment Advisers Act of 1940, RIAs must be held to a strict fiduciary standard. They must always act in the best interest of their clients. They must also do that while providing full disclosure of their fees.
Real Estate Brokers
Meanwhile, in the real estate industry, a broker refers to a licensed real estate professional that normally represents the seller of a property.
A real estate broker’s duty includes determining the market value of the properties that are being sold. He or she must also be responsible for the listing and advertising of the property for sale, as well as showing the property to the prospective buyers.