A Broker is a licensed professional who connects his clients to the suppliers so that the clients can get the products and/or services they are looking for. There are various types of brokers like the real estate brokers who buy, sell or rent real estate stockbrokers who buy securities and shares from various companies. Freight brokers who connect their clients to the shippers to transport goods at a fair price, mortgages brokers who do mortgage broking at a fixed brokerage mortgage, etc. Likewise, there are finance brokers too, who sell finance-related products to the clients. Let’s discuss finance brokers in detail.
What is a finance broker?
A finance broker is a third-party broker, who coordinates the sale of shares and securities between the buyers and the sellers. A finance broker acts on behalf of his clients to organize loans if required, arrange for insurances, and also to provide financial advice whenever necessary. Commercial finance brokers have some specified duties and responsibilities in aiding their clients to deal with finance-related products like life insurances, mutual funds, annuities, etc. all for a fixed commission.
Finance broker helps his clients assess their current financial needs and identify the best possible ways to meet those needs. A finance broker may sometimes specialize in only one line of business and sometimes assist in various options available. Therefore, if you want to invest in a business, you may appoint a finance broker who will provide a one-stop solution to all your finance-related needs.
Types of Finance Brokers
There are a variety of options available that call for specialized finance brokers. Finance brokers are classified based on their work specialization and are categorized on the mode of their services provided by them.
Categories of finance brokers based on their specialization:
1) Floor Brokers
A floor broker is one who assists his clients in finance-related transactions of buying and selling of securities directly on the floor of the stock market exchange and hence called Floor Brokers.
2) Upstairs Brokers
These brokers are more concerned about transactions taking place in the retail markets.
3) Mortgage Brokers
Mortgage Brokers help their clients to identify the best mortgage deals.
Categories based on fees charged by the brokers:
1) Full-Service Broker
Full-service brokers are licensed brokers that offer services like financial research and planning to their clients. These are expensive brokers, and their brokerage fees are based on the volume of the trade. The higher the volume of the more will be the brokerage fees.
2) Discount Brokers
Discount brokers are recommended only if the traders are experienced. Unlike the full-service brokers that do all the research and advise their clients, discount brokers do not give any research advice or finance tips to the traders. The traders need to do all these on their own, and therefore, the discount brokers charge lesser brokerage fees as compared to full-service brokers.
3) Commission-free brokers
Commission-free brokers do not charge anything for segments like commodities, futures, options, etc, and hence are called commission-free brokers.
Apart from these, there are also online brokers and offline brokers. Online brokers interface with their clients over the internet rather than interact with them directly on a 1 to 1 basis. Online brokers are very helpful traders for active traders who want speedy and reliable financial advice with a small commission. Generally, online brokers charge a commission based on price per share.
Offline brokers interact directly with theirs and offer financial advice at a fixed percentage of commission.
Duties of a financial broker
A finance broker performs the following duties:
1) A finance broker is responsible for gathering information on the present stock market trends and prices of commodities. He is also responsible for sharing this information with his clients after taking into account their circumstances.
2) A finance broker is responsible for preparing all the relevant documents that are required for a financial transaction to be successful, thereby saving a lot of time and effort for the clients.
3) A finance broker liaises with banks and other credit unions to arrange for home loans, commercial finance planning, business planning, insurance, etc on behalf of their clients. The liaising with their clients helps the finance brokers to determine the various financial requirements to meet the finance-related goals of the clients.
4) The finance brokers have the potential to access various loan options that may not be identified by an individual borrower. Finance brokers can tap into various resource networks that easily secure a loan when the clients have been turned down by other lenders or banks.
5) A finance broker can also act as an advocate or finance agent for its clients. The broker pursues only those options that will go perfectly with the operating budget set in by the clients. This way, a finance broker can save a lot of money for his clients even after taking his commission into account.
Difference between a broker and a financial advisor
A broker is different from a financial advisor in the following ways:
1) A broker is more of a commercial agent who works as a salesman selling financial products like annuities, insurance policies, securities, mortgages, etc. on the other hand; a financial advisor does not sell anything.
2) Financial institutions that work as brokers get their commissions for the financial products sold by them to the clients. On the other hand, a financial advisor gets paid for his clients’ financial advice.
3) Brokers follow suitability standards, which is in contrast to financial advisors who follow fiduciary standards.
4) Brokers help potential stockholders in investments that would be profitable to the clients, whereas a financial advisor assists his clients with the financial planning, investments, and management that their clients already have.
5) A broker’s fees are directly tied to the products he sells, and as long as the products remain relevant to the clients, they can sell them and get their fees. Sometimes that can also charge some extra fees if the clients buy products from them. Fees often drive brokers and therefore the clients suffer at the end, because the brokers are not liable to tell his clients how his commission accrued. On the other hand, a financial advisor is paid by a small percentage of the assets and investments that they manage. Some advisors also charge fees on an hourly basis for the advice offered by them.