Broker - Explained
What is a Broker?
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Table of ContentsWhat is a Broker?What Does a Broker Do?Types of BrokersReal estate broker Insurance Broker Stock Broker High-End Broker Online Broker How to Protect Yourself from BrokersAcademic Research on Brokers
What is a Broker?
A broker is an individual in charge of transacting business deals on behalf of clients. A broker gets a commission for every transaction he or she makes. A broker can also be a firm acting as customers agent and charges a commission for the services it renders to customers. Another way to define a broker would be a middleman who purchases and sells products or services for a third party.
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What Does a Broker Do?
Brokers are people who have undergone training and have a license to offer brokerage services. Brokers usually specialize mostly in bonds, options, commodities, or stocks. Brokers are generally required to register with the exchange where trading of securities take place. Brokers are different from salesmen because the salesmen engage in selling simple products on behalf of the manufacturer. Also, they do not need any training or license to sell or buy the products. In general, brokers are professionals who operate in various fields. For this reason, a broker must be specialized and knowledgeable in the area he or she intends to work in. The training, therefore, comes in handy.It equips the broker with appropriate knowledge and skills to be able to execute his or her duties efficiently. Note that brokers exist not just in financial markets but also in real estate markets. When it comes to brokerage firms, they are required to operate under certain regulations. These regulations are usually based on the brokerage type as well as the jurisdiction in which the brokerage firm operates. Also, it is important to note that brokers do not get their license from the federal government. Instead, each state in the United States is in charge of giving their brokers license. Additionally, each state has its own laws which they use to define various correlations existing between investors and brokers. It includes the brokers duties to clients as well as members of the public.
Types of Brokers
In the world of business, there are different types of brokers. Some of them are as explained below:
Real estate broker
A real estate broker is an individual who facilitates the buying and selling of property. However, real estate brokers usually sought assistance from salespersons known by the name estate agents. These individuals usually assist real estate brokers in the selling process. When it comes to the estate industry, a brokers duties include the following:
- To determine properties market values set to be sold
- Taking potential buyers to view the property
- To list and advertise the properties set for sale
- Giving advice to clients on the available real estate offers as well as matters related to real estate
- Submitting to the sellers the available offers for consideration
- Researching and locating the properties in areas that clients desire so that they can make an offer to clients
- Doing property transaction on the buyers behalf
- Property management and repair negotiations
Different insurance companies also work with brokers. These brokers usually provide clients with the best insurance policies. Apart from providing structure policies, they also work on customer claims. Insurance brokers work on a commission basis. Note that there are several types of insurance deals. Some areas mentioned below:
Usually, an insurance broker would specialize in one kind of insurance deal. To be eligible to work as an insurance broker, you are required to go through training first. In addition, you will have to obtain a formal license from either of the following:
- Security and Exchange Commission
- Other government investment-related associations
A stockbroker works in the stock market. There are two types of stockbrokers. Full-service brokers and discount brokers. The difference between the two stockbrokers is that the discount brokers charge less commission for their services. The situation is contrary to full-service brokerage whose charges are considerably high because of the extra roles they are mandated to do. For instance, discount stockbrokers do not offer advisory services to the clients, but full-service stockbrokers do. Such extra roles are what makes their commission charges to be a bit higher.
High-End brokers are mandated to study and make plans on the economys condition. They usually engage a team of researchers who study the market status, give recommendations, and advice to clients. Some of the advice given to the clients is the best time for selling or buying a property.
Online brokers use various brokerage websites to make business transactions. Their main job is to avail investment-related database information to their clients. They do this through the internet. The database information is presented in the form of charts, graphs, and investment tips.
How to Protect Yourself from Brokers
Generally, there are risks involved when investors decide to involve middlemen in their businesses. It is, therefore, important for investors to do in-depth research about a broker before engaging him or her. This way, an investor can easily access a genuine licensed broker, who is also transparent in his or her dealings. In other words, to avoid broker-related investment risks, it is important to know the kind of person you are bringing on board as your broker. Know his background information and how he or she has handled his brokerage services in the past. Note that a broker may be an individual or a firm. In every state, there is a state securities regulator. From this place, you will be able to access genuine and detailed information about various brokers. It is, therefore, important for a broker to get information for them before making a decision. Also, there is the Securities Investor Protection Corporation (SIPC). It protects investors from brokerage firms, especially in the event that the firm becomes bankrupt. It also protects investors in case their securities are stolen. An investor should find out if the person or the firm he is about to engage as a broker covers such risks. However, SIPC is not in any way obligated to protect an investor in case of a decline in his or her investment holdings.