Stock Market Investors » Stock Broker Classes and Commissions » Stockbroker Commission Structures

Stockbroker Commission Structures

When deciding on the type of broker to serve your trading activities, you should consider whether the selected broker will fit your investing habits and needs.

Brokers have different commission structures depending on the scope of services they offer to their clients. Some brokers charge a fee in return to their services. These are preferred by many investors.

Brokers fall in two major categories:

  1. Full-service brokers
  2. Traditional and discount brokers

There are many firms that are a hybrid between the two categories.

Discount Brokers

Discount brokers are suitable for investors that don't need financial advice or research. These investors have done their homework and all they need is someone to process their order. Discount brokers do exactly this in a timely manner at a reasonably low price.

Full Service Brokers

Full service brokers have different reward structures. They are as follows:

  • Commission-based

    Commission-based brokers' way of work is similar to that of discount brokers with the difference that they offer a wider portfolio of services. For instance, clients of commission-based brokers have access to stock recommendations. Additionally, commission-based brokers provide advice on the suitability of stocks.

    This reward structure is losing its popularity since it is not very financially beneficial to brokers. However, the good side is that clients are given the opportunity to discuss their investment portfolios face to face with a professional.

  • Fee-based

    Under this commission structure, the broker charges his/her client a flat fee. The fee is paid in return to recommendations, researches, trades and the supplementing activities. Each firm decides on the scope of services that is covered by the fee paid by the client.

    Depending on the assets you hold in the account with the broker, you are charged a percentage of these assets that the broker manages. This means that the more money you have given the broker to manage the lower the percentage charged will be.

    This reward structure is extremely suitable for investors that trade very frequently. Additionally, it provides access to researches and recommendations of financial professionals, which may further facilitate the stock investment decisions of the investor.

    What is more, once charged the fee covers all services offered by the broker. So, the client can benefit from all of them without having to pay additionally.

Final Piece of Advice

Since fee-based brokers provide services in return to a one time fee that is usually paid on quarterly basis, it is a convenient way to take advantage of the full range of services without worrying about the additional expenses surrounding extra services.

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