Earn $10 when you view your rate on a personal loan *
Bonus deposited into a SoFi Money® account. See terms.

What Does an Investment Broker Do?

May 07, 2021 · 6 minute read

We’re here to help! First and foremost, SoFi Learn strives to be a beneficial resource to you as you navigate your financial journey. Read more We develop content that covers a variety of financial topics. Sometimes, that content may include information about products, features, or services that SoFi does not provide. We aim to break down complicated concepts, loop you in on the latest trends, and keep you up-to-date on the stuff you can use to help get your money right. Read less

What Does an Investment Broker Do?

One of the most common ways investors interact with assets is by trading stocks and bonds through a broker. The broker—or brokerage firm—is the middleman between the buyer and seller, and can help make a transaction go smoothly.

But an investment broker is not strictly necessary. Some companies offer a direct stock plan, allowing investors to purchase shares straight from the company without a broker. In order to decide if you need an investment broker, it’s essential to know what they are, what they do, and how to shop around for one that fits your needs.

This article will cover everything you need to know about brokerage firms and how they might help you meet your investment goals.

What Exactly Is an Investment Broker, Anyway?

Investment brokers are the companies that enable individuals to buy and sell securities, like stocks, on an exchange market.

Reputable brokers act as a boon to both buyers and sellers: They ensure that each party actually has money to buy assets with, or the assets to sell.

Brokers settle trades by delivering securities and payments to each party, while also taking care of all the bookkeeping and tax-related documentation required. In many cases, going through a brokerage firm is the easiest and most accessible way for individuals to get started with investing.

Pros and Cons of Using a Brokerage Firm

As with any financial service, there are both benefits and drawbacks to using a brokerage firm to facilitate your trades.

Pros of Using a Broker

Accessibility

Thanks to the magic of the internet, you can sign up for a brokerage account in minutes and start trading stocks as soon as your account is funded. That means employing a broker is one of the easiest ways to get started on an investment journey as soon as possible.

Simplicity

When you buy and sell through a broker, a lot of the tedious footwork—like keeping tabs of your interest earnings for tax purposes—is taken care of for you. Depending on the level of brokerage firm you go with, you may also have access to professional financial advice and other advisory services that could help you make the most of your portfolio.

Cons of Using a Broker

Fees and commissions

Although they’ll vary based on the specifics you choose and the type of account you open, some brokers charge maintenance fees as well as trade fees, or commissions, which can nickel-and-dime away at your nest egg. That said, there are ways to minimize your investment fees or even eliminate them entirely. Some brokers offer a certain number of commission-free assets, and SoFi Invest® offers active investment services without commission.

Required portfolio minimums

Although it’s not true of every brokerage firm, some require you to keep a minimum amount of money in your account in order to use their services. These minimums might be $500 or more, which can be a barrier to entry for some beginner investors.

Different Kinds of Brokerage Accounts

Not all brokers are created equal. There are many kinds of brokerage accounts to choose from. The best product for you will depend on your individual financial goals as well as your budget. Here’s what you need to know to help make an informed decision.

Full-Service Brokerage Accounts

Along with the ability to buy and sell assets, a full-service brokerage account might also include advice from human financial planners, and portfolio management to help you make the best investment decisions possible. However, these perks don’t come cheap. Full-service brokerage accounts and wealth-management companies usually calculate their charges as a percentage of your total portfolio, and may have account minimums as high as $500,000. They may also collect trade commissions and annual management fees.

Discount Brokerages

These brokerages offer less in the way of consultation and guidance, allowing you to DIY your investment portfolio on the cheap. Many of them have $0 account minimums and may charge less than $10 per trade—or even offer totally commission-free assets.

Both full-service and discount brokerages typically offer both cash and margin accounts. In a cash account, you’ll need to have the actual cash money to buy your assets, whereas in a margin account, the broker will lend you some capital to make purchases, using the securities you already own as collateral.

Different Types of Investment Accounts

Aside from deciding what type of brokerage you’d like to do business with (and how much you’re willing to pay for financial services), you’ll also need to decide what type of investment account works best for your goals.

Maybe you’re investing for a shorter-term objective, like purchasing a house—or maybe you’re trying to ensure you’ll have a comfortable retirement. Either way, there are specific investment account types, or “vehicles,” designed to help you get there.

Personal Investment Account

Think of this as a default investment vehicle. It may be a good choice if you’re looking to grow wealth and want to be able to add or withdraw funds on your own terms without waiting to reach a certain age or life circumstance. You do pay taxes on earnings, however, so there are no tax advantages to this type of account. If you don’t make any specific investment vehicle choices when you open your brokerage account, this is most likely the one you’re getting.

Individual Retirement Account (IRA)

This type of investment account is designed specifically for retirement goals, and is available to both self-employed people and those who are employed by a company. IRAs carry certain tax incentives; for example, contributions to traditional IRAs are deductible, while Roth IRAs allow for tax-free distributions. However, you can’t access the funds without paying a penalty until you reach age 59.5 or meet certain circumstantial requirements, such as purchasing your first home.

A broker may offer other savings or investment vehicles, such as a 529 account, which is a tax-incentivized plan to help people save for educational costs. For full details on the type of accounts available, it makes sense to check with your broker directly.

Alternatives to Investing Through a Traditional Broker

Although using a broker to invest in the stock market might be a smart money move for some, there are other ways to get started with investing, including the following options.

Automated Investing

Automated investment products, or robo-advisors, are platforms that utilize a combination of computer algorithms and human financial planners to create and manage diversified portfolios at low costs to users.

Your funds will be invested in a diversified portfolio, and the platform typically offers goal-planning tools and rebalancing services to help keep your funds moving in the right direction.

If you don’t want to pay the high prices for a full-service broker, but the idea of DIYing your portfolio makes you more than a little nervous, this third option may be just right for you.

Buying Stocks Directly From the Source

Depending on whose stocks you’re interested in purchasing, you may be able to buy them directly from the issuer without needing to go through a brokerage firm.

It pays to read the fine print, however: Buying stocks directly may save you money on trade commissions, but you may also be subject to proprietary fees from the company itself, or minimum purchase amounts.

For investors who go this route, it can still be helpful to diversify your assets. If all of your investments are tied up in a single company, you may not be in a great position if that company begins to falter—whereas if you’ve invested in several different firms and other asset classes, you will likely have a wider margin for error.

Choosing Alternative Investments

Although the stock market is one of the most popular and generally low-effort ways to invest, there are plenty of other ways to try turning your money into more money.

You might consider exploring alternative investments. For example, you could invest in real estate and sell property at a profit, or turn a condo into a passive income source by putting it up for lease. Or you might invest in art; the value of paintings is disconnected from the behavior of the stock market, giving it the potential to rise even during a crash.

That said, many alternative investments require significantly more time, work, and know-how than crafting a diversified portfolio of stock market assets. And as always, every investment involves risk. There’s no such thing as a sure thing.

The Takeaway

If you’ve decided stock market investments are the right move for you and your money, going through a broker can be a relatively simple and low-cost way to gain access to the market. For some investors, the accessibility and simplicity of using a broker may outweigh any potential downsides, like fees or required account minimums.

For investors looking to get started buying and trading stocks, ETFs, crypto, and more, SoFi Invest has options to suit different goals and preferences. SoFi’s automated investment account can be opened with a contribution as low as $1. And for a more hands-on experience, try active investing, with no account minimums or commission fees.

Find out how to get started with SoFi Invest.


SoFi Invest®
The information provided is not meant to provide investment or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . SoFi Invest refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.
1) Automated Investing—The Automated Investing platform is owned by SoFi Wealth LLC, an SEC Registered Investment Advisor (“Sofi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC, an affiliated SEC registered broker dealer and member FINRA/SIPC, (“Sofi Securities).
2) Active Investing—The Active Investing platform is owned by SoFi Securities LLC. Clearing and custody of all securities are provided by APEX Clearing Corporation.
3) Cryptocurrency is offered by SoFi Digital Assets, LLC, a FinCEN registered Money Service Business.
For additional disclosures related to the SoFi Invest platforms described above, including state licensure of Sofi Digital Assets, LLC, please visit www.sofi.com/legal. Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform. Information related to lending products contained herein should not be construed as an offer or pre-qualification for any loan product offered by SoFi Lending Corp and/or its affiliates.
Exchange Traded Funds (ETFs): Investors should carefully consider the information contained in the prospectus, which contains the Fund’s investment objectives, risks, charges, expenses, and other relevant information. You may obtain a prospectus from the Fund company’s website or by email customer service at [email protected] Please read the prospectus carefully prior to investing. Shares of ETFs must be bought and sold at market price, which can vary significantly from the Fund’s net asset value (NAV). Investment returns are subject to market volatility and shares may be worth more or less their original value when redeemed. The diversification of an ETF will not protect against loss. An ETF may not achieve its stated investment objective. Rebalancing and other activities within the fund may be subject to tax consequences.
Crypto: Bitcoin and other cryptocurrencies aren’t endorsed or guaranteed by any government, are volatile, and involve a high degree of risk. Consumer protection and securities laws don’t regulate cryptocurrencies to the same degree as traditional brokerage and investment products. Research and knowledge are essential prerequisites before engaging with any cryptocurrency. US regulators, including FINRA , the SEC , and the CFPB , have issued public advisories concerning digital asset risk. Cryptocurrency purchases should not be made with funds drawn from financial products including student loans, personal loans, mortgage refinancing, savings, retirement funds or traditional investments. Limitations apply to trading certain crypto assets and may not be available to residents of all states.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
SOIN19114

All your finances.
All in one app.

SoFi QR code, Download now, scan this with your phone’s camera

All your finances.
All in one app.

App Store rating

SoFi iOS App, Download on the App Store
SoFi Android App, Get it on Google Play

TLS 1.2 Encrypted
Equal Housing Lender