Stockbroker: Definition, Types, Job Requirements, and Salaries

What Is a Stockbroker?

A stockbroker is a financial professional who executes orders in the market on behalf of clients. A stockbroker may also be known as a registered representative (RR) or an investment advisor.

Most stockbrokers work for a brokerage firm and handle transactions for several individual and institutional customers. Stockbrokers are often paid on commission, although compensation methods vary by employer.

Brokerage firms and broker-dealer companies are also sometimes referred to generically as stockbrokers. These include full-service and discount brokers who execute trades but do not offer individualized investing advice.

Most online brokers are discount brokers, at least at their basic service levels, in which trades are executed for free or for a small set-price commission. Many online brokers offer robo-advisors that automate the buying and selling process.

Understanding the Role of a Stockbroker

Buying or selling stocks requires access to one of the major exchanges, such as the New York Stock Exchange (NYSE) or the NASDAQ. To trade on these exchanges, you must be a member of the exchange or belong to a member firm. Member firms and many individuals who work for them are licensed as brokers or broker-dealers by the Financial Industry Regulatory Authority (FINRA).

Until recent years, getting access to the stock markets was prohibitively expensive. It was cost-effective only for high net-worth investors or large institutional investors, such as the managers of pension funds. They used full-service brokers and could pay hundreds of dollars for executing a trade.

However, the rise of the internet and related technological advances paved the way for discount brokers to provide online services with cheap, fast, and automated access to the markets. More recently, apps like Robinhood and SoFi have catered to micro-investors, allowing even fractional share purchases. Most accounts in the markets today are managed by the account owners and held by discount brokers.

Stockbrokers in the 21st Century

Brokers who are employed by discount broker firms may work as over-the-phone agents (known as voice brokers) available to answer brief questions or as branch officers in a physical location. They also may consult with clients subscribing to premium tiers of the online broker.

A comparatively smaller number of stockbrokers work for investment banks or specialized brokerage firms. These companies handle large and specialized orders for institutional clients and high-net-worth individuals (HNWI).

Another recent development in broker services is the introduction of roboadvisers, programs that use algorithmic investing techniques carried out via web or mobile app interfaces. There is minimal individual interaction, keeping fees low.

Educational Requirements for Stockbrokers

A bachelor's degree in finance or business administration is typically required for stockbrokers. A strong understanding of financial laws and regulations, accounting methods, principles of economics and currency, financial planning, and financial forecasting are all useful for working in the field.

Global credentials are also becoming increasingly sought-after as signals of legitimacy and financial acumen. Examples include the certified financial planner (CFP) and chartered financial analyst (CFA) designations.

Licensing Requirements for Stockbrokers

In the U.S., registered brokers must hold the FINRA Series 7 and Series 63 or 66 licenses and be sponsored by a registered investment firm. Floor brokers in the U.S. must also be members of the stock exchange where they work.

In Canada, would-be stockbrokers should be currently employed by a brokerage firm and are required to complete the Canadian Securities Course (CSC), Conduct and Practices Handbook (CPH), and the 90-day Investment Advisor Training Program (IATP).

In Hong Kong, applicants must work for a licensed brokerage firm and pass three exams from the Hong Kong Securities Institute (HKSI). Those who pass the exam must still be approved by the financial regulatory body to receive a license.

In Singapore, becoming a trading representative requires passing four exams, Modules 1A, 5, 6, and 6A, administered by the Institute of Banking and Finance. The Monetary Authority of Singapore (MAS) and the Singapore Exchange (SGX) have licensing authority.

In the United Kingdom, stockbroking is heavily regulated, and brokers must achieve qualifications from the Financial Conduct Authority (FCA). Precise qualifications depend on the specific duties required of the broker and the employer.

The Bottom Line

Stock brokers are the intermediaries that conduct transactions between investors and exchanges. They are required to be licensed by the Financial Industry Regulatory Authority and usually have a college degree in finance or business administration.

They also act as advisors and become securities experts so they can offer personalized investment strategies to clients.