A stockbroker (also known as a registered representative (RR)) is a regulated financial practitioner who places orders on behalf of customers in the market. The majority of stockbrokers operate as a broker and deal with both institutional and individual clients. Stockbrokers are frequently compensated on a basis of commission, though this varies according to the employer.
The majority of brokerages that offer their services online are discount brokers, meaning that they handle trades 100% free or at low rates of commission. Fees are reduced as a result of this automated approach. On the other hand, there are a lot of brokerages that provide higher-priced premium services, such as portfolio management, and provide advice.
Keep reading if you want to find out more about stockbrokers, their history, their importance, licensing, and more.
History of Stockbrokers
Discount brokers employ brokers as voice brokers to work in a physical location as a branch officer or to answer clients’ queries. Sometimes, they consult individuals who have subscribed to the broker's premium tiers. Specialized brokerages and Investment banks employ fewer stockbrokers. Customized and big orders for high-net-worth and institutional clients are handled by these brokerages.
The emergence of Robo-advisers is a notable advancement in the world of stockbrokers. They provide algorithmic investment management through a mobile app or web platform. And because there is little one-on-one connection, fees are kept low.
Importance of Stockbrokers
At this point, you’re probably wondering why you even need a stockbroker. Access to top exchanges (like the NASDAQ or NYSE) is required to buy or sell stocks. It is a necessity to be a member of these exchanges or a member firm to be able to trade on them. The Financial Industry Regulatory Authority (FINRA) licenses member firms and others who work for them as broker-dealers or brokers.
Besides big institutional investors or wealthy individuals willing to pay a good sum of money for a trade to be executed, getting access to a stock market was not affordable to most individuals until recently. And now, discount brokers are able to offer their services with quick and inexpensive market access thanks to the emergence of technological advances. Discount brokers typically just purchase and sell on clients’ behalf, but brokers with full services offer a wider range of services, including research, portfolio management, and advice.
Hence, a stockbroker acts as a link between a certain market and the general public. Clients place orders with brokers, and brokers endeavor to fill them as cheaply as they can. They are compensated with a commission in return.
Stockbrokers Requirements
A stockbroker typically needs a bachelor's degree in business administration or finance. This industry requires a thorough understanding of the regulations and rules, basics of economics, financial forecasting, and financial planning. Global credentials are also growing more valuable as indicators of trustworthiness. Examples of those are the CFA and CFP.
As for licensing requirements, it is essential to point out that each country has its unique requirements. Registered brokerage firms in the United States, for example, are required to hold the FINRA Series 66 or Series 63 and Series 7, as well as getting the sponsorship of a registered investment company. In the United States, a floor broker has to be a member of the stock exchange where it works.
As for an aspiring stockbroker in Canada, it’s a necessity to have worked for a brokerage firm and finished the nighty-day Investment Advisor Training Program (IATP), Conduct and Practices Handbook (CPH), and Canadian Securities Course (CSC).
To become a trading representative in Singapore, it is necessary to pass four tests held by the Institute of Banking and Finance: Modules 6, 5, 6A, and 1A.
The business is even more strictly regulated in the United Kingdom, and brokerages must get certifications from the Financial Conduct Authority (FCA).
It is a necessity for an applicant in Hong Kong to work for a licensed brokerage firm and to complete three exams with success administered by the Hong Kong Securities Institute (HKSI). To acquire a license, applicants must be approved by the financial regulating agency after passing the exams.
