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What Does an Investment Broker Do?

May 07, 2021 · 7 minute read

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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


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.


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 offers a range of investment options to suit different goals and preferences. SoFi’s automated investment account can be opened with a deposit as low as $5. And for a more hands-on experience, try active investing, with no account minimums or SoFi 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. Also, past performance is no guarantee of future results.
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.
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