If you’re new to investing, you might be wondering, what is a broker? What do brokers do and do you really need one?
What Does a Broker Do?
A broker assists you with financial transactions like buying stocks or taking out a mortgage. The term “broker” can refer not just to a person but to a firm as well. When viewed using that broader definition, it’s easy to see how brokers are essential for processing trades and transactions. It’s important, though, to know what type of broker is best for you and to understand the types of services brokers provide.
Key Takeaways
- A broker can assist you with financial transactions, such as investing in stocks or applying for a mortgage.
- Typically, brokers are paid via commission, though some might charge account fees.
- A broker is not the same as a financial advisor. Brokers can make recommendations, but aren’t mandated to make recommendations based on a client’s best interests. Financial advisors, on the other hand, are held to this.
- You might find it more convenient or lower-cost to use an online, commission-free brokerage.
Types of Brokers: An Overview
Here’s a look at the different broker types. See which one might apply to your situation.
Stock Brokers
A financial broker is an intermediary that is authorized to sell and purchase securities and stocks on behalf of buyers and sellers. Brokers also provide a host of other investment services on behalf of their clients.
Real Estate Brokers
Real estate brokers assist clients with real estate transactions, from finding properties and making recommendations to processing paperwork.
Insurance Brokers
Insurance brokers help individuals and businesses find the right insurance policies, from fire and earthquake to property, life and so on.
Mortgage Brokers
Mortgage brokers facilitate home loans between lenders and borrowers, trying to find the best rates and match the right products with the right buyers.
Commodity Brokers
Commodity brokers are like stock brokers, but instead of stocks, they buy and sell oil, gold and agricultural products on behalf of clients.
Other Financial Brokers
For any product that can be bought and sold, there is a broker. You can find brokers for options, futures, foreign exchange and a whole host of individual or specialized investment products, like rare coins, fine art or vintage cars.
How Brokers Make Money: Broker Fees and Commissions
Although brokers can be infinitely helpful, there’s a cost to using their services. Here are some of the ways that brokers get paid.
Commission-Based Fees
Traditionally, stock brokers earned commissions on every trade they executed, but that is rapidly becoming a thing of the past. Most online brokers now charge $0 commission for simple stock and ETF trades. Commodities and other financial brokers often still earn per-transaction commissions, however. Real estate brokers charge commissions when real estate is bought or sold, with the seller generally covering the bulk of the cost, if not all of it.
Fee-Only Brokers
In the financial services world, many brokers have moved away from commission-based trading to a fee-only model. For example, some brokers might charge an annual fee of 1% or more of your assets instead of commissions
Spread-Based Commissions
When you trade stocks, there is a small gap between the price you have to pay when you buy a stock and the price you would receive if you sold it. This difference is known as the spread. Some brokers pocket some or all of this difference as their fee.
Other Charges
In addition to fees and commissions, some brokers charge account fees. These may range from annual fees required to keep an account open to inactivity charges for lack of use.
Full-Service vs. Discount Brokers
When it comes to stock brokers, there are two broad categories: full-service and discount. Here are the primary differences.
Full-Service Brokers
Traditional brokers generally offer a vast array of professional services to their clients, from investment advice and portfolio management to retirement planning, estate planning, and so on. These types of brokers tend to have a one-on-one relationship with their clients and can be ideal for those seeking guidance, whether they are beginners trying to understand the markets or wealthy professionals with advanced financial planning needs.
Discount Brokers
Discount brokers, or online brokers, tend to be execution-only. These brokers typically charge $0 commissions for online trades of stocks and ETFs, but they also offer little by way of advice or financial planning. This makes them suitable for self-directed traders and investors prioritizing low costs over service. Online brokers have dramatically gained in popularity over the past decade or so.
Brokers vs. Other Financial Professionals: Key Differences
In addition to stock brokers, there are many other types of financial professionals. Knowing the differences among them can help you choose the most suitable one for your needs.
Brokers vs. Financial Advisors
A broker can facilitate your trading and investments and can offer financial advice. However, it surprises many to learn that a broker isn’t legally required to act in a client’s best interests, only to make “suitable” recommendations. A fiduciary financial advisor, on the other hand, has a legal and ethical mandate to only recommend what’s best for a client.
If you simply need a place to make your own stock trades, a broker can be a suitable option. If you need financial planning that’s in your best interests, it’s better to stick with a fiduciary financial advisor.
Brokers vs. Wealth Managers
A wealth manager takes a holistic approach to a client’s finances and integrates various aspects of financial planning to create a complete plan for a client. For example, in addition to investment advice, a wealth manager will help clients plan for their children’s education, their own retirement, insurance and estate planning needs and more. Wealth managers are generally a good option for affluent clients with more complex needs.
Brokers vs. Investment Bankers
Most individuals will never need to deal with an investment banker. Unlike brokers, investment bankers advise companies and governments. One of their primary functions is to set up deals that raise capital for these entities, such as through a bond sale or a public stock offering.
Advantages and Disadvantages of Using a Broker
Working with a broker has its pros and cons.
Pros
- You’ll have access to professional money management and advice.
- Your broker can do most of the legwork for you, saving time and effort.
- You can choose from a wide range of financial products and services.
Cons
- Brokers can charge fees and commissions that can eat into profits.
- You’ll have limited control over some transactions.
- There’s a risk that your broker is untrustworthy, lacks expertise or has poor customer service skills.
How To Decide if Using a Broker Is Right for You
If you’re making any type of financial transaction, there’s usually a broker available to help you execute it. The question you have to ask yourself is, what benefits or services will you get from a broker, and is it worth the cost? To that end, it’s a good idea to shop around and see what different brokers can do for you and if their assistance is worth the cost.
In some situations, like selling your house, you’re likely going to need a broker to help you, and it’s going to cost you money. But in that scenario, it pays to find a broker that can give you value-added services, such as getting you a better price for your home. When it comes to stock brokers, determine if you need a full-service, high-cost option or if you can get by with an online, no-commission, no-service broker.
Although cost shouldn’t be your only consideration in choosing a broker, it’s also an important factor, as you should be sure you’re receiving value in exchange for any fees that you pay. Ultimately, choosing the right broker — one that aligns with your needs — might be the best investment you could make.
What Is a Broker? FAQ
If you need more answers about brokers and what to look for, here's another look.- Do I need a broker to buy stocks?
- Yes, you need a brokerage firm to buy stocks. You can use an online brokerage to enter trades yourself if you don't want to go through the traditional route of entering your trades through a person.
- What is the difference between a stockbroker and a real estate broker?
- A stockbroker buys and sells stocks and offers financial advice. A real estate broker facilitates real estate transactions, such as the buying and selling of a house.
- How do insurance brokers get paid?
- Insurance brokers earn commissions, but they are usually paid directly by the insurance company and not by the client. However, the cost of these commissions is built into whatever products you buy.
- Can brokers help with retirement planning?
- Brokers can help with retirement planning, but you'll likely want to work with a fiduciary financial advisor, such as a Certified Financial Planner, if you want trustworthy advice that's legally in your best interest.
- Are online brokers safe to use?
- In terms of the safety of your money, yes, registered online brokers have the same SIPC protection as brick-and-mortar firms. However, as all of your financial information will be transmitted online, you should check an online broker's cybersecurity protocols.
Shahin and John Csiszar contributed to the reporting for this article.
Information is accurate as of April 15, 2025.