Direct Stock Purchase Plans (DSP) and Dividend Reinvestment Plans (DRIP) allow investors to invest directly in companies without using the services of a broker. However, these direct investment plans have their own limitations. It will suffice to state that a large portion of the population relies on stock brokers who execute buy and sell orders in exchange for a fee. The term ‘broker’ is applicable to individual businessmen as well as financial trading firms.
They may either provide a wide range of services, or just fulfill buy and sell orders at a reduced commission. Full-service stock brokers provide a plethora of services that include rendering investment advice, retirement planning tips, tax advice, and estate planning. These services are meant for high net worth individuals who do not have the time to stay abreast of changes in the stock market and invest accordingly. One must note that these people earn a remuneration that is commensurate with the amount of trading activity that is undertaken rather than the overall performance of the client’s portfolio. They are required to ask people for their personal information, viz. social security number (SSN), net worth, and investment objectives, in order to assess the suitability of a trade. This may be mandatory in some cases and failure to do so may result in the violation of the rules laid down by the Financial Industry Regulatory Authority (FINRA), a body created in the year 2007, by a merger between the National Association of Securities Dealers and the New York Stock Exchange’s regulation committee. It’s a regulatory authority that is responsible for governing transactions between brokers, dealers, and the investors. Thus, investors who have disputes with such firms are required to file their grievances with FINRA.
Investors who are only interested in short-term stock trading, may be better off using a discount broker instead, since the former may prove to be very expensive. The latter only execute orders for a commission and do not provide any other services.
Professionals employed by full-service brokerage firms earn by way of commission. In other words, their earnings are proportional to the number of transactions executed. Hence, there is a danger of these brokers encouraging people to conduct more trades than necessary. On the other hand, discount brokers are paid a fixed salary regardless of the number of trades.
As of April 2009, the average salary of stock brokers in the US ranged between USD 47,131 and USD 58,686, with the median expected remuneration being USD 54,211. In the year 2006, the median salary was higher at USD 68,500, which is understandable since the recession has impacted the pay scale in this field. However, even now a reputed and successful person could earn as much as USD 81,050. These professionals earn a great deal of money in a bull market since positive sentiment translates into an increased trading volume. Once, the US economy is back in full swing and the recession is a thing of the past, one can expect the salary range to improve drastically.
To become a licensed broker one needs to pass the Series 7 and the Series 63 exams administered by the Financial Industry Regulatory Authority (FINRA). These exams ensure that the person is well-versed with the rules and regulations of the securities industry. Although, a number of institutions claim to provide stock trading training, there is no substitute for practical experience.