What Is an Investment Broker?

What Is an Investment Broker?

An investment broker is a type of financial advisor who can execute trade orders on market exchanges such as the New York Stock Exchange or Nasdaq, or make investment decisions on behalf of their clients. While you don't need to work with an individual broker, you'll at least need a brokerage account to buy and sell stocks, bonds, mutual funds, exchange-traded funds (ETFs), individual retirement accounts (IRAs) and more.

You may choose to work with a:

• Stockbroker: A stockbroker may work independently or for a brokerage firm to facilitate trades on behalf of their clients. They can carry out your trade requests or manage your portfolio for you. Brokerage firms themselves are also sometimes called stockbrokers.
• Brokerage firm: These companies can be an online brokerage (sometimes called a discount brokerage), full-service brokerage, robo-advisor or some combination of all three. Using a brokerage, you can make trades yourself via a brokerage account or opt for a full-service broker who offers portfolio management and investment advice. You may work with one investment broker at the firm or simply use the company's tools and resources to manage your trades and investments with minimal interaction.
• Robo-advisor: This is an online investing platform that makes trades automatically based on your risk tolerance, time horizon and goals. Robo-advisors use algorithms to provide investors a hands-off approach and often come with lower fees than other investment services.

Tip: Investment brokers may provide a wide gamut of services. Before choosing one broker or brokerage firm to work with, make sure you've reviewed all the options they provide to determine what works best for you.

Investment Broker vs. Investment Advisor

The main difference between an investment broker and an investment advisor is the level of support you'll receive. Both can facilitate market trades on behalf of clients, but investment advisors often go a step further: They can monitor your investment accounts and make personalized investment recommendations based on your unique goals.

Tip: Registered investment advisors (RIAs) are also obligated to act as a fiduciary. That means they have a duty to act in your best interests. That may not be the case with an investment broker, who might be motivated to steer you toward financial products that earn them a commission.

Both investment brokers and investment advisors must pass exams from the Financial Industry Regulatory Authority (FINRA) and register with the Securities and Exchange Commission (SEC). Some investment brokers and advisors may also be fiduciaries, but it's not a requirement; however, all registered investment advisors are fiduciaries.

How Much Does an Investment Broker Cost?

An investment broker can be compensated in a few different ways, but it's important to remember that every financial professional and brokerage is different. The amount you pay can vary widely based on the broker and the level of service you need. That said, you might come across the following fee structures:

• Trading commissions: Many discount brokerages don't charge a commission on stock trades, but you can expect higher fees if you're working with a full-service investment broker that's managing your portfolio or offering investment advice. Fees can also vary based on the type of securities you're trading. Actively managed mutual funds, for example, often charge a load fee when new shares are purchased. That could equal 1% to 2% of each sale.
• A percentage of your total assets under management (AUM): This fee can range from one investment broker to the next, but 1% to 2% is common.
• An hourly rate or a flat service-based fee: An investment broker can also hold other designations. For example, they might be credentialed as a certified financial planner (CFP) who can offer comprehensive financial services like retirement advice and estate planning. In this case, they might charge $100 to $300 per hour or a flat fee for specific services.

Learn more:How Much Does a Brokerage Account Cost?

Who Should Consider an Investment Broker?

An investment broker can be the bridge that connects you to the stock market. That might be as simple as registering with a robo-advisor or online brokerage, or as involved as working with a full-service brokerage firm or investment advisor. Either way, you'll need a broker to make trades.

Investing is often a key part of saving for retirement and growing your wealth over the long haul. When done strategically, it can also unlock certain tax benefits. Working with a CFP or investment broker who can offer personalized guidance could go a long way in achieving your long-term financial goals.

Learn more:How Much Money Do You Need to Start Investing?

Is an Investment Broker Worth it?

If investing is part of your financial plan, the answer is probably yes. Fortunately, there are low-cost ways to invest. Robo-advisors are generally the most cost-effective. But if you're an investor who enjoys researching trades and buying and selling securities yourself, an online brokerage platform can allow you to do just that. Think about the level of support you'd ideally like to get from an investment broker, then ask yourself if the fees make sense for your budget and are worth the potential benefits.

If you have an employer-sponsored retirement plan, you can also purchase securities through automatic payroll deductions. You can expect 401(k) fees, but they are less steep than working with a full-service brokerage firm—and they offer certain tax advantages you can't get investing through a brokerage.

How to Choose an Investment Broker

You'll want to do your research before choosing an investment broker. Here are some important things to consider before going all in:

• Start with your investment style. Are you looking for a set-it-and-forget-it approach? Do you want hands-on advice and personalized guidance? Also ask yourself if you prefer to manage your portfolio yourself or outsource the task to a financial professional.
• Compare broker features and fees. Every investment broker is different. Shopping around and comparing services, features and costs can help you land on a broker that feels most aligned with your needs.
• Check the broker's background. Anyone can call themselves a broker and promise big-time investment returns. Be wary of any individual or firm that sounds too good to be true. Always run their name through FINRA's BrokerCheck database. This can confirm whether they're registered to sell securities and provide investment advice. You can also read customer reviews and confirm any other credentials they hold.

The Bottom Line

An investment broker acts as an intermediary that connects investors to the stock market. They might make trades on your behalf, manage your portfolio and offer investment guidance—or simply provide a platform for you to buy and sell securities yourself. The level of service you choose is ultimately up to you. What matters most is working with a reputable investment broker who's properly licensed and can help you meet your investment goals.