What Is a Broker?

If you’re doing anything related to money or investing, chances are you’ll have to deal with a broker. A broker is someone who serves as a conduit for you when purchasing various things. There are several different types of brokers, from investment brokers to insurance brokers. Knowing what a broker is and what he or she does is important to ensuring you effectively work with this type of financial professional.

You may also work with a financial advisor who can deal with any necessary brokers for you as they manage your investments.

Broker Definition

A broker serves as an intermediary between buyers and sellers, facilitating transactions in various markets, including real estate, insurance and financial securities. Brokers are essential in helping clients navigate complex markets by providing expert advice and access to a wide range of products and services. They earn commissions or fees for their services, which can vary depending on the type of transaction and the specific market in which they operate.

There are several types of brokers, each specializing in different areas. Stockbrokers, for example, assist clients in buying and selling stocks and other securities. They provide valuable insights into market trends and help investors make informed decisions. Real estate brokers, on the other hand, guide clients through the process of buying, selling, or renting properties. Insurance brokers work with clients to find the best insurance policies to meet their needs, often comparing products from multiple providers to ensure the best coverage at competitive rates.

Brokers are typically required to be licensed and regulated by relevant authorities to ensure they adhere to industry standards and protect consumers. In the United States, stockbrokers must pass the Series 7 and Series 63 exams administered by the Financial Industry Regulatory Authority (FINRA). Real estate brokers must obtain a state-issued license, which involves completing coursework and passing an exam. These regulations help maintain the integrity of the profession and provide clients with confidence in the services they receive.

What Do Investment Brokers Do?

One of the most common types of brokers is an investment broker or stockbroker. This is generally the type of broker you see discussed and portrayed in popular media (think: Gordon Gekko from “Wall Street” or Jordan Belfort in “The Wolf of Wall Street”). Most real-life stockbrokers, though, are nothing like these notorious characters.

An investment broker is a middleman for investors buying shares of a publicly traded company, commonly known as stock. Many stock trades these days are executed via electronic brokerages without any human interaction. Some investors still like using a human stockbroker to get the best price or to get a professional’s insight into what the best investments are at any given time.

To work as an investment broker, you must pass a difficult exam called the Series 7 exam, administered by the Financial Industry Regulatory Authority (FINRA). This exam tests a would-be stockbroker’s knowledge of finance and financial markets. Other tests are available if a broker wants to trade bonds or other securities.

Investment brokers earn money by charging a fee to their clients for every trade or purchase they make. Brokers normally work at a brokerage firm. Some of the biggest are Fidelity and Vanguard. Brokerage firms offer tools you can use to manage your investments.

What Do Real Estate Brokers Do?

A real estate broker’s job is similar to a stockbroker. Real estate brokers are middlemen for a piece of property. You’ve dealt with real estate brokers if you’ve sold or bought a home. One broker represents you, and another represents the other party in the sale.

A broker will facilitate the sale of your home, or help you buy another home. One thing to note is that you may deal with a real estate agent rather than a real estate broker. While they perform similar functions, an agent has less education and certifications than a broker. In most states, brokers can work by themselves while agents have to work under the supervision of a broker.

Real estate brokers earn money through commissions that are based on the price of the sale they help facilitate. Make sure it’s clear how that works before agreeing to work with one.

What Do Insurance Brokers Do?

Insurance brokers, like real estate brokers and stockbrokers, work as middlemen to sell you a product. In this case, it’s an insurance product. Insurance brokers will often work with many different insurance companies so they can offer a variety of options to their customers.

Generally, an insurance broker will specialize in offering one type of insurance, such as health, auto or life insurance. Because many people get their health insurance through their job and buy their auto insurance directly through a company, the type of insurance broker you are most likely to work with in planning your financial future is a life insurance broker.

A broker will offer you several options, and you’ll get to pick the one that you think makes the most sense. A broker will generally make a commission from the company based on the type of insurance he or she sells you, so know that there is an inherent conflict of interest. An insurance broker generally makes more money from selling more expensive insurance products.

How to Find a Broker

Whichever type of broker you are looking for, there are several ways to find one who’s suitable. Your financial advisor also might be an insurance broker. Just be aware that if you hire a financial advisor who also acts as a broker, he or she will have potential conflicts of interest. That’s because these advisors will earn additional compensation from selling insurance or equity products, which may incentivize them to do so.

Once you have a clear idea of what you’re looking for, it’s time to research and compare different brokers. Look for brokers with a solid reputation and a history of reliability. Check online reviews and ratings from other investors to gauge customer satisfaction. Additionally, consider the range of services offered, such as educational resources, research tools, and customer support. Comparing these factors will help you make an informed decision.

Ensuring that your broker is properly regulated is vital for your financial security. Regulatory bodies, such as the Securities and Exchange Commission (SEC) in the United States, oversee brokers to ensure they adhere to industry standards and protect investors. Verify that the broker you are considering is registered with the appropriate regulatory authority. This step can provide peace of mind, helping you know that you’re in good hands.

Personal recommendations can be invaluable when searching for a broker. Talk to friends, family, or colleagues who have experience in investing and ask for their insights. They may be able to recommend brokers they trust and share their experiences, both positive and negative. Additionally, consider joining online forums or groups where you can connect with other individuals who have experience and gather more recommendations.

Bottom Line

If you use a broker, make sure you know upfront what their fees are. They generally earn a commission based on how much money they spend. However, you’ll want to know exactly how they get paid. This will prevent any surprises about how much you have to pay them. In the case of insurance brokers, this will also let you know if any potential conflicts of interest might lead your broker to pick more expensive products for you, even if you don’t need them.

Investing Tips

Perhaps the most important member of your personal finance team is your financial advisor. They can help you find other important professionals to work with and guide your decision-making. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
Knowing how your investments will grow over time is an important part of planning your financial future. SmartAsset’s investment calculator can help see what your investments might look like in 10, 20 or 50 years.