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What Is a Stockbroker?

The term stockbroker is thrown around a ton in popular culture. Stockbrokers are frequently portrayed as members of the glamorous and fast-paced Wall Street world. We often think they spend the majority of their time frantically screaming “buy!” or “sell!” on the phone. So what exactly do stockbrokers do? 

If you’re curious about this seemingly mysterious career, you’ve come to the right place. We’ll go over everything you’ll need to know. Including answers to questions like what is a stockbroker, what do stockbrokers do, and how to become a stockbroker. We’ll also help you decide if working with a stockbroker or financial advisor is best for you. Scroll down to get started!

What Do Stockbrokers Do?

Simply put, a stockbroker acts as the middleman between investors and the stock market. Just like real estate brokers help people buy and sell their homes, stockbrokers help investors buy and sell investment securities. They facilitate trades of stocks, bonds, mutual funds, and other securities. They typically work at an investment firm and earn a commission for each transaction they supervise. 

But the most important part of a stockbroker’s job isn’t facilitating trades. It’s finding eligible investors with enough capital to be willing to buy the securities the stockbroker has to offer. In this way, the majority of a stockbroker’s job centers around sales. Stockbrokers have to continuously source new clients and keep existing clients happy. 

Do Stockbrokers Provide Investment Advice?

One of the most important ways stockbrokers keep their existing clients happy is by offering sound investment advice. Investors typically look to stockbrokers for guidance on when to buy or sell certain securities. Stockbrokers that are well-versed in economic and financial market conditions will be able to provide quality advice. 

Stockbrokers used to be the only way for investors to access the stock market. High-net worth individuals, fund managers, and other large-scale institutional investors would direct stockbrokers to conduct trades on their behalf. The average person that would only want to buy a couple of shares would be excluded from accessing financial markets directly.

How Are Stockbrokers Affected by Online Brokerages?

However, recent technological developments have made it easier and cheaper for people to access financial markets. Nowadays, automated discount brokers are playing a larger role in facilitating trades. Platforms like TD Ameritrade, E-Trade, Robinhood, and SoFi allow investors to buy and sell securities electronically for little to no cost. 

Some analysts would argue that stockbrokers are a dying career breed — citing the rise of discount brokers and increased competition as detrimental to this field’s job prospects. Although online discount brokers have reduced the need for human stockbrokers, the U.S. Bureau of Labor Statistics maintains that job prospects for stockbrokers will increase 4% by 2029 – which is about the average job growth rate across industries. 

There are still many high-net-worth individuals and institutions that want to work with human stockbrokers. For this reason, stockbrokers are a viable career choice if you’re willing to put in the hard work. 

How To Become a Stockbroker

In order to become a stockbroker, there may be certain educational and certification requirements one must meet. Let’s review what these requirements are below.

Education Requirements

Despite most commonly held beliefs, there are no specific education requirements to become a stockbroker. Years ago, stockbrokers without a college degree were commonplace. However, nowadays it is common that stockbrokers have at least a 4-year college degree.

It’s recommended stockbrokers have an undergraduate degree in economics, finance, business, or another math-related field — such as statistics or quantitative analysis. Many stockbrokers will also pursue a masters degree in these fields. 

Remember that stockbrokers are first and foremost supposed to serve their client’s best interests. Higher educational attainments put stockbrokers in a better position to analyze financial market movements and identity favorable trades. 

Certification Requirements

While there are no set educational requirements to become a stockbroker, there are several exams stockbrokers need to pass in order to earn their title. 

SIE

The Security Industry Essentials (SIE) Exam is an introductory exam for financial professionals. Topics such as basic knowledge of financial markets, different investment products, risks associated with different investment products, financial market structures, regulatory agencies, and prohibited practices are all covered within 75 questions. The exam lasts about an hour and 15 minutes. 

The SIE is open to any student or professional that is at least 18 years old. In fact, some students will take the exam before they graduate, in hopes of impressing potential employers. 

Series 7

Also called the General Securities Representative Qualification (GS) Exam, the Series 7 is another entry-level exam required for stockbrokers and other investment professionals. There are 125 questions about performing security sales. 

Examinees will be asked about opening brokerage accounts, providing investment information, transferring clients’ assets, and processing sales. Examinees will need to have a thorough understanding of the different rules and regulations that cover these job functions. Unlike the SIE Exam, the Series 7 requires sponsorship from a firm, meaning it is only open to professionals.

Series 63

Also known as the Uniform Securities State Law Exam, the Series 63 exam covers the ethical and fiduciary obligations every financial professional must follow. The exam consists of 65 multiple-choice questions and examinees only have 75 minutes to complete it. 

Examinees will need to show an in-depth understanding of the rules, regulations, and ethical practices required to facilitate investment transactions. Many of the questions will be on various securities acts and how they apply to real-life scenarios. Like the Series 7, the Series 63 exam is only open to financial professionals already working in a firm. 

Stockbroker vs Financial Advisor

Stockbrokers and financial advisors have similar responsibilities. Both are financial professionals that offer their clients investment advice and execute trades on their behalf. Even though these professions share plenty of overlap, there are important differences between the two. Let’s compare and contrast the two.

Examination Requirements

Both stockbrokers and financial advisors have to pass the Series 7 exam. Oftentimes, professionals can be both a stockbroker and a financial advisor.

Work/Life Balance

If you’re considering a career as either a stockbroker or financial advisor, know that the work-life balance between the two is different. Financial advisors typically have much more flexible schedules and can enjoy more of a work-life balance. However, at the beginning of their careers, it takes long hours and hard work to build a collective of clients. 

On the other hand, stockbrokers are required to be active during market hours. If they are trading on foreign exchanges, they may need to adjust their sleeping schedules accordingly. Stockbrokers also face considerable stress and competition, as market conditions can fluctuate daily. 

Fiduciary Requirements

Stockbrokers are required by law to be fiduciaries, or always act in accordance with their clients’ best interest even if it conflicts with their own. This means all stockbrokers must take and pass the series 63 exam. 

On the other hand, financial advisors are not always fiduciaries. Most quality financial advisors will have taken and passed the Series 63 to become fiduciaries, but it is not required. Investors seeking professional financial guidance should verify if they are working with a fiduciary or not. 

It is recommended investors only work with financial advisors that are fiduciaries — as this is the only way to ensure their best interests will be protected. 

Financial Management vs Trading

Another important distinction between stockbrokers and financial advisors is that stockbrokers specialize in executing trades for clients. While financial advisors provide a more holistic approach to financial management along with executing trades.

Most financial advisors will offer additional financial advice such as retirement planning, tax assistance, budgeting, and more. Financial advisors also actively monitor and manage their clients’ investment portfolios. 

Fee Structure  

Stockbrokers are oftentimes less expensive to work with than financial advisors, particularly because they offer fewer services. Nowadays, the rise of online discount brokers make it inexpensive and easy for anyone to trade stocks, bonds, and other investment securities. Some investors choose to turn to these platforms instead of human stockbrokers.

While stockbrokers are typically paid with commissions from on every transaction, financial advisors are paid by charging a small annual fee as a percentage of the assets under management.

Financial advisors are typically more expensive to work with than stockbrokers. They charge about 1% to 3% of the total assets under their management. Depending on the advisor, there may also be additional hourly fees or flat fees.

Should You Work With a Stockbroker?

Choosing between a stockbroker or a financial advisor is a difficult decision many investors face. It’s important to understand exactly what kind of financial services you are looking for.

Stockbrokers provide a very specialized service, namely executing trades. Some stockbrokers offer additional services or investment advice, but it depends on the individual broker.  

Despite the higher costs, many investors find it worthwhile to work with a financial advisor. Their personalized services and comprehensive approach to investment management and financial planning are often well-worth the fees. Many investors can successfully grow their assets and plan for their financial future by working with a financial advisor

All in all, both stockbrokers and financial advisors are excellent career choices. Investors can also reap plenty of benefits by working with a stockbroker or financial advisor — or both!