Looking for a stock broker? Prepare to be a little confused. There are full-service stock brokers and discount stock brokers, representing a myriad of brokerage firms. There are execution only, advisory and discretionary dealing stock brokers. You can interact with your stock broker online or on the phone, and you can either bring your own plan to the table or rely completely on the broker's expertise.
While the term "broker" might make some investors a bit uncomfortable in these stark economic times, the word actually means "one who acts as an agent for another." In the case of a stock broker, this can be done on various levels. An "execution only" arrangement puts most of the burden on the client, who calls the broker and simply provides instructions on what to buy or sell. Advisory dealing still leaves the decision with the client, but the stock broker may offer offer background information and suggestions. Finally, with a "discretionary" relationship, the stock broker is given free rein to use his or her own judgment.
The stock market is, at its core, a gamble. What the stock broker does is to bet your money that the price of a certain share of stock will rise beyond what you pay for it -- if not immediately, at least in the long term. A broker may also advise you to sell a certain stock that seems to have peaked, or is rumored to be on the verge of a fall.
A full-service broker might deal with other financial entities, such as annuities and bonds, as well as stocks. At the other end of the spectrum is the discount broker, whose relationship is generally conducted through execution only. The pool of knowledge required to be an effective stock broker is immense. Not only must the broker be on intimate terms with the rules and quirks of the market, but he or she must also be able to process information about various companies with an eye toward whether that stock is likely to go up or down.
In order to reach that position of authority, a prospective broker must pass two comprehensive examinations. Almost all of them them work for brokerage houses, and they are paid in various ways. Some work on commission from the customer, some work on a fixed salary, and some combine both.
What kind of broker to choose depends on a number of factors. If you are a person who enjoys playing the market and relishes the thrill of the gamble, a discount broker might be the way to go. If you are hoping to grow your retirement nest egg a little without taking a great many risks, you would probably want to turn over more responsibility to your broker. Obviously, the more input and services a broker offers, the higher the price or commission.
