financial professionals who provide support and advice to market players based
on their needs and goals. While it’s possible to invest on your own, you may
have asked yourself whether working with an investment broker could make your
investing better.
To help you decide, here’s more information about investment
brokers to take note of.
Investment Broker ExplainedAn investment broker is a person or firm specializing in
services focusing on investment-related transactions that involve securities
like stocks, bonds, mutual funds, and other products. This type of financial
expert can buy and sell securities in the market on behalf of the client.
Investment brokers work with a specific goal in mind. They
either do their job to help clients, their own accounts, or both. Modern
technology has also taken investment brokers online in the form of trading
platforms which usually have fewer fees, or zero commissions compared to human
brokers.
You cannot interchange the terms investment broker and
financial advisor. While investment brokers are professionals in the financial
sector, their responsibilities differ from financial advisors‘.
For example, a full-service investment broker can research
the markets and endorse certain investments for you.
On the other hand, financial advisors analyze your overall
financial situation to develop a comprehensive, tailored plan, which can
involve different strategies besides investing, to help you meet your financial
needs and goals.
Investment Broker: Source of Profit
Investment brokers get paid through broker fees or
investors‘ fees and commissions on trades they’ve carried out on the client’s
behalf. Here’s an overview of the specific costs included in a broker fee.
· Mutual Fund Fees
Investment brokers can make money by charging fees on trades
they make with mutual funds. Mutual fund fees vary depending on the class of
the shares. Class A shares involve upfront commissions that brokers receive
directly.
With Class B shares, investors must pay a fee if they cannot
stay invested in them for a particular period. On the other hand, Class C
shares charge fees for maintenance, which can be quite high.
· Assets Under Management (AUM) Fees
AUM fees are based on the number of assets you’re holding.
This fee is usually taken as a percentage of the total value of the investor’s
portfolio. For example, an AUM fee of 1% on your portfolio that is worth $1
million is $10,000.
· Spreads
A spread is the difference between the amount you paid to
buy an asset and the amount paid to the issuer. The difference usually goes to
the broker, representing their profit.
The trading spreads on small stocks are usually significant,
while spreads on big stocks are very small, often not even reaching one dollar.
· Trading Commissions
Commissions are another profit source for investment
brokers. Every trade brokers make on behalf of their clients receives a
commission. Many online brokers today offer commission-free trades on eligible
securities.
· Account Fees
Investment brokers may also make money by charging clients
with account management fees, such as conducting a maintenance check on their
accounts every month.
Investment Broker: Should You Work with One?
Working with an investment broker can be a good idea if
you’re a beginner investor or need an expert’s input on the investment plan
you’re developing.
You also need a clear strategy and goals to know what kind
of investment broker you should seek assistance and advice from. You would want
to make sure that your strategy and goals are in line with the broker fees.
For instance, finding a broker with low AUM fees can work
for your goals if you have a small investment portfolio. Or, if you trade
regularly, a broker that charges low commissions may be the best option.
This article was written by ForexLive at www.forexlive.com.