What Is a Broker? - SmartAsset

If you’re doing anything related to money or investing, chances are you’ll have to deal with a broker. A broker is someone who serves as a conduit for you when purchasing a variety of things. There are a number of different types of brokers, from investment brokers to insurance brokers. Knowing what a broker is and what he or she does is important to ensuring you effectively work with this type of financial professional. You may also work with a financial advisor who can deal with any necessary brokers for you as they manage your investments.

Broker Definition

A broker is a person who buys and sells things for others. That is to say, brokers don’t create or manufacture items and sell them to you. Rather, brokers are the middlemen who buy and sell products or investment vehicles for third parties.

Brokers are specially trained and licensed to buy and sell complicated products, distinguishing them from a salesman who sells simple goods on behalf of a manufacturer. Below, see descriptions of all the different types of brokers you may do business with.

What Do Investment Brokers Do?

One of the most common types of brokers is an investment broker or stockbroker. This is generally the type of broker you see discussed and portrayed in popular media (think: Gordon Gekko from “Wall Street” or Jordan Belfort in “The Wolf of Wall Street”). Most real-life stockbrokers, though, are nothing like these notorious characters.

An investment broker is a middleman for investors buying shares of a publicly traded company, commonly known as stock. Many stock trades these days are executed via electronic brokerages without any human interaction. Some investors still like using a human stockbroker to get the best price or to get a professional’s insight into what the best investments are at any given time.

To work as an investment broker, you must pass a difficult exam called the Series 7 exam, administered by the Financial Industry Regulatory Authority (FINRA). This exam tests a would-be stockbroker’s knowledge of finance and financial markets. Other tests are available if a broker wants to trade bonds or other securities.

Investment brokers earn money by charging a fee to their clients for every trade or purchase they make. Brokers normally work at a brokerage firm. Some of the biggest are Fidelity and Vanguard. Brokerage firms offer tools you can use to manage your investments.

What Do Real Estate Brokers Do?

A real estate broker’s job is similar to a stock broker. Real estate brokers are middlemen for a piece of property. You’ve dealt with real estate brokers if you’ve sold or bought a home. One broker represents you, and another represents the other party in the sale.

A broker will facilitate the sale of your home, or help you buy another home. One thing to note is that you may deal with a real estate agent rather than a real estate broker. While they perform similar functions, an agent has less education and certifications than a broker. In most states, brokers can work by themselves while agents have to work under the supervision of a broker.

Real estate brokers earn money through commissions that are based on the price of the sale they help facilitate.

What Do Insurance Brokers Do?

Insurance brokers, like real estate brokers and stockbrokers, work as middlemen to sell you a product. In this case, it’s an insurance product. Insurance brokers will often work with many different insurance companies so they can offer a variety of options to their customers.

Generally, an insurance broker will specialize in offering one type of insurance, such as health, auto or life insurance. Because many people get their health insurance through their job and buy their auto insurance directly through a company, the type of insurance broker you are most likely to work with in planning your financial future is a life insurance broker.

A broker will offer you a number of options, and you’ll get to pick the one that you think makes the most sense. A broker will generally make a commission from the company based on the type of insurance he or she sells you, so know that there is an inherent conflict of interest. An insurance broker generally makes more money from selling more expensive insurance products.

How to Find a Broker

Whichever type of broker you are looking for, there are a number of ways to find one who’s suitable. Your financial advisor also might be an insurance broker. Just be aware that if you hire a financial advisor who also acts as a broker, he or she will have potential conflicts of interest. That’s because these advisors will earn additional compensation from selling insurance or equity products, which may incentivize them to do so.

The Bottom Line

No matter what field they’re in, a broker is a person who helps you buy something from a third party. They are educated and licensed middlemen who make it easier for those of us not trained in their industries to purchase a product.

If you use a broker, make sure you know upfront what their fees are. They generally earn a commission based on how much money they spend. However, you’ll want to know exactly how they get paid. This will prevent any surprises about how much you have to pay them. In the case of insurance brokers, this will also let you know if there are any potential conflicts of interest that might lead your broker to pick more expensive products for you, even if you don’t need them.

Investing Tips

Perhaps the most important member of your personal finance team is your financial advisor. They can help you find other important professionals to work with and guide your decision-making. Thus, finding the right financial advisor is key. SmartAsset’s free tool free financial advisor matching service will find up to three financial advisors who are right for you, based on a short survey you’ll fill out. We fully vet our advisors and ensure they have no disclosures. You can then read your advisor matches’ profiles and set up a time to talk and ask question, get started now.
Knowing how your investments will grow over time is an important part of planning your financial future. SmartAsset’s investment calculator can help see what your investments might look like in 10, 20 or 50 years.