A middleman who executes buy and sell orders on an investor’s behalf
Brokers are individuals or companies who execute orders on behalf of investors and take a commission for doing so. They are the middlemen responsible for connecting people who want to sell assets with those who want to buy them.
What brokers do
As well as handling orders on behalf of their customers, some brokers also offer investment advice and intelligence on market movements, enabling traders to make informed decisions.
Whereas such services were once the preserve of high net worth individuals, low-cost online brokerages have opened up the markets to anyone who has a small amount of money to invest. That said, these internet-based providers do not tend to offer the range of support delivered by full-service brokers, such as retirement planning and money management.
The obligations of brokers
Brokers are normally regulated. In the US, they are obliged to register with the Financial Industry Regulatory Authority. In the UK, it is the Financial Conduct Authority.
They are compelled to work in the best interests of their clients and only offer investment opportunities that are suitable for them. This is in place to prevent a conflict of interest where brokers recommend a strategy that financially benefits their company but goes against the client’s appetite for risk.
Brokers also need to perform Know Your Customer checks and obtain information about their client’s financial situation, tax affairs, risk tolerance, age and the length of time they are planning to invest.
Industries that use brokers
Brokers are not just found in the financial world. Here are just some of the industries where these professionals are employed:
· Real estate: Brokers in this sector often represent sellers, advertising properties to potential buyers, establishing an asking price, and giving advice once offers are made;
· Mortgages: These intermediaries help buyers to find affordable loans when they are purchasing property;
· Insurance: These brokers work on behalf of those seeking a policy. They source a range of quotes from insurers based on the customer’s requirements.