Stockbroker: Definition, Types, Job Requirements, and Salaries

What Is a Stockbroker?

A stockbroker is a financial professional who executes orders in the market on behalf of clients. A stockbroker may also be known as a registered representative (RR) or an investment advisor. Most stockbrokers work for a brokerage firm and handle transactions for several individual and institutional customers. Stockbrokers are often paid on commission, although compensation methods vary by employer.

Understanding the Role of a Stockbroker

Buying or selling stocks requires access to one of the major exchanges, such as the New York Stock Exchange (NYSE) or the NASDAQ. To trade on these exchanges, you must be a member of the exchange or belong to a member firm. Member firms and many individuals who work for them are licensed as brokers or broker-dealers by the Financial Industry Regulatory Authority (FINRA).

Until recent years, getting access to the stock markets was prohibitively expensive. It was cost-effective only for high net-worth investors or large institutional investors, such as the managers of pension funds. They used full-service brokers and could pay hundreds of dollars for executing a trade.

However, the rise of the internet and related technological advances paved the way for discount brokers to provide online services with cheap, fast, and automated access to the markets. More recently, apps like Robinhood and SoFi have catered to micro-investors, allowing even fractional share purchases. Most accounts in the markets today are managed by the account owners and held by discount brokers.

Brokerage firms and broker-dealer companies are also sometimes referred to generically as stockbrokers. These include full-service and discount brokers who execute trades but do not offer individualized investing advice. Most online brokers are discount brokers, at least at their basic service levels, in which trades are executed for free or for a small set-price commission. Many online brokers offer robo-advisors that automate the buying and selling process.

Stockbrokers in the 21st Century

Brokers who are employed by discount broker firms may work as over-the-phone agents (known as voice brokers) available to answer brief questions or as branch officers in a physical location. They also may consult with clients subscribing to premium tiers of the online broker.

A comparatively smaller number of stockbrokers work for investment banks or specialized brokerage firms. These companies handle large and specialized orders for institutional clients and high-net-worth individuals (HNWI).

Another recent development in broker services is the introduction of roboadvisers, programs that use algorithmic investing techniques carried out via web or mobile app interfaces. There is minimal individual interaction, keeping fees low.

Educational Requirements for Stockbrokers

A bachelor's degree in finance or business administration is typically required for stockbrokers. A strong understanding of financial laws and regulations, accounting methods, principles of economics and currency, financial planning, and financial forecasting are all useful for working in the field.

Global credentials are also becoming increasingly sought-after as signals of legitimacy and financial acumen. Examples include the certified financial planner (CFP) and chartered financial analyst (CFA) designations.

Licensing Requirements for Stockbrokers

In the U.S., registered brokers must hold the FINRA Series 7 and Series 63 or 66 licenses and be sponsored by a registered investment firm. Floor brokers in the U.S. must also be members of the stock exchange where they work.

In Canada, would-be stockbrokers should be currently employed by a brokerage firm and are required to complete the Canadian Securities Course (CSC), Conduct and Practices Handbook (CPH), and the 90-day Investment Advisor Training Program (IATP).

In Hong Kong, applicants must work for a licensed brokerage firm and pass three exams from the Hong Kong Securities Institute (HKSI). Those who pass the exam must still be approved by the financial regulatory body to receive a license.

In Singapore, the Institute of Banking and Finance administers nine different modules while the Singapore College of Insurance administers five modules. The Monetary Authority of Singapore (MAS) and the Singapore Exchange (SGX) have licensing authority.

In the United Kingdom, stockbroking is heavily regulated, and brokers must achieve qualifications from the Financial Conduct Authority (FCA). Precise qualifications depend on the specific duties required of the broker and the employer.

Stockbroker Salaries

Before we touch on actual numbers, let's talk about the types of pay a stockbroker may receive. One of the primary ways stockbrokers earn money is through commissions. Whenever a broker buys or sells securities on behalf of their clients, they receive a commission which is usually a percentage of the transaction value. In addition to commissions, stockbrokers may charge various fees for their services. These can include account maintenance fees, advisory fees, and fees for specific services such as financial planning or investment research.

Stockbrokers employed by larger financial institutions or brokerage firms often receive a base salary along with performance-based bonuses. The salary provides a steady income, while bonuses are typically tied to the broker's success in meeting sales targets, acquiring new clients, or achieving certain performance metrics.

According to Salary.com, the average stockbroker salary in the United States as of July 2024 was $161,399. The average salary range is between about $122k/year to $188k/year. The top 10% of stockbrokers made over $213,000 annually.

Stockbroker Vs. Financial Advisor

A stockbroker is primarily focused on the buying and selling of securities such as stocks and bonds on behalf of their clients. On the other hand, a financial advisor offers a much broader range of financial planning services. Financial advisors assist clients with comprehensive financial planning which includes retirement planning, tax advice, estate planning, insurance needs, and budgeting.

Financial advisors take a more holistic approach to managing a client’s financial well-being. A financial advisor is generally more likely to help clients achieve long-term financial goals, while a stockbroker is more useful in executing short-term investment strategies. Financial advisors typically charge fees based on the assets they manage or hourly rates for their advice, while the compensation structure of a stockbroker (discussed above) is slightly different.

The key difference between a stockbroker and a financial advisor lies in the scope and nature of the services they provide. While stockbrokers focus on specific transactions within the market, financial advisors engage in overall financial strategy and planning. Note that a stockbroker can be a financial advisor (with the qualifications), and a financial advisor can also be a stockbroker (again, with the right qualifications).

The Bottom Line

Stockbrokers are the intermediaries that conduct transactions between investors and exchanges. They are required to be licensed by the Financial Industry Regulatory Authority and usually have a college degree in finance or business administration. They also act as advisors and become securities experts so they can offer personalized investment strategies to clients.