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What Is the Definition and Meaning of an Investment Broker?

by Karen Schweitzer

Financial investing is a big business. According to a Gallup poll conducted in 2013, more than half of all adult Americans invested in the stock market this year. Soaring stock prices and pressure to invest for retirement has piqued interest among those who don't invest. Of course, not everyone is well-versed in financial matters, and many people need advice about choosing investment products. This is where investment brokers come in.

Investment Broker Definition

Investment brokers, or brokers for short, work with individual clients in an advisory capacity. They explain financial investments, including stocks, bonds and mutual funds, and help clients choose the right investment products. Brokers also execute trades for clients and may assist with buying and selling securities. They get paid to advise customers and generally make a commission when securities are bought and sold through them or the firm they work for.

Brokers vs. Investment Advisors

Investment brokers are sometimes confused with investment advisors. Both are financial experts who can advise individual clients about investment products. However, the regulations for these professions differ. Investment advisors are required to always recommend investments that are in their clients' best interests. Brokers, on the other hand, work under a suitability standard, which means that they are only required to recommend or sell investments that are considered suitable for the client. The difference means that a broker may suggest investments that are suitable, but not the best option, simply because the investment leads to better commissions or incentives for the broker or brokerage firm.

Types of Brokers

Brokers may work independently or as part of a larger brokerage firm. The services they provide can also be dependent on the type of firm they work for. The most common types of brokerage firms are full-service and discount-service brokerage firms. Full-service brokers provide financial advice, assist with research, trade assets and broker the buying and selling of many types of securities and commodities. They offer more services than any other broker, but also tend to charge higher fees. Discount-service or deep-discount brokers focus on the trading aspect alone; they do not provide financial advice or other investment tools. Trade-only brokers sometimes charge 50 to 90 percent less than full-service brokers.

Licensing, Regulation and Certification

Investment brokers are regulated by the National Association of Securities Dealers and must be licensed in the state in which they plan to practice. They must also be registered with the Financial Industry Regulatory Authority, FINRA. Additional licenses that give the broker the right to sell specific investment products, such as annuities, can be earned as well. Although not required to do so, some investment brokers choose to pursue the Chartered Financial Analyst (CFA) certification, a highly respected designation in the finance industry.

About the Author

Karen Schweitzer is a writer and author with 10-plus years of experience. She has written 11 non-fiction books and currently works as a senior editor for Education-Portal.com. In her spare time, she blogs and assists clients with article writing, editing, proofreading and other projects.

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