I'm Donny. I'm a world traveler, investor, entrepreneur, and online marketing aficionado who has a big appetite to compete and disrupt big markets. I thrive on being able to create things that impact change, difficult challenges, and being able to add value in negative situations.
Some of the links in this post are from our sponsors. We provide you with accurate, reliable information. Read our Advertising Disclosure.
Today, most investors rely on internet technology to carry out their investment activities. Instead of using a brokerage firm or a personal stock broker, they use an online brokerage account to enter their trades.
Does this mean that stock brokers are becoming a dying breed?
Stock brokers are still relevant in modern investing because they enable you to earn significant returns by helping you identify and invest in the most viable companies. They advise on the best investment strategies, portfolio growth and maintenance, and help in keeping updated financial records.
The rest of this article will provide more detailed information on the role of stockbrokers in modern investing and explain why they might still be relevant in today’s stock markets.
You will also find information on how to trade without using a stockbroker, and if it’s wise to do so.
Why we like Robinhood:
Robinhood has commission-free investing, and tools to help shape your financial future.
Trading fees: $0
Signup Deposit: $100
Promotion: Get 1 free stock
What Role Do Stockbrokers Play in Modern Investing?
Today’s stockbrokers mainly serve corporate and business investors who still depend on the services offered by experienced stockbrokers and major brokerage houses. Most individual investors buy their own stocks, having moved to online investing, while others invest with discount brokers.
That said, stockbrokers are invaluable to beginner traders since they can offer them all the guidance they need.
They are also useful to traders using online trading platforms as they can help them navigate the platforms. Besides, if you are a big-time investor, you wouldn’t want your trades transacting at the whim of some automated system but would rather have someone overseeing them.
In addition to doing the above, stockbrokers play the following roles too:
- They help to work your trades for a favorable price.
- They guide you on the best investment strategies for your success and keep you from trades that are unsuccessful.
- They offer creativity, versatility, and adaptability.
- They provide guidance on the rules and regulations governing financial investments and their effects.
- They help navigate the rapid market changes that a modern trading algorithm might fail to take advantage of.
- They enable you to buy and sell stocks available in both local and international stock markets.
As you can see, any potential investor looking to grow their money stands to benefit greatly from engaging the services of a professional stockbroker. This is true regardless of their skills, experience, or investment size.
Stock Brokers Face Increasing Competition
Prior to the internet, a trader who wanted to invest in stocks could only do so via a stockbroker.
This is because to trade, you needed to open an account with a brokerage house, after which the firm would assign a stockbroker to manage your account. The role of the stockbroker was to act as both a salesman and counselor.
To this effect, he was there to:
- Offer any assistance you might require when making transactions.
- Recommend which specific stocks to buy to help you grow your portfolio.
Traditional stockbrokers made their money from the level of activity they generated. This means that the higher the number of transactions they handled, the more commissions they earned.
Successful stockbrokers handled several regular clients as well as extremely wealthy investors with large, actively managed accounts. They also charged for their portfolio building and management services.
Discount Brokerage Firms
Modern stockbrokers also make their money in a similar manner.
They give financial advice for a fee or buy and sell shares on your behalf for a commission. However, they face stiff competition from discount brokerage firms that enable savvy investors to execute trades via online trading platforms.
While discount brokerage firms boast similar services to stockbrokers, theirs come at a much lower cost. The low fees help them appeal to many investors.
Passive investing is where your money purchases several shares in a group of companies.
Many traders opt for passive investing because it comes with an array of benefits. For example, It allows you to diversify into index funds, helps minimize expenses, and also lowers investment taxes.
Watch the video to better understand how passive investing differs from active investing.
Why You Might Consider Trading Without Using a Stock Broker
There are many reasons why you might consider conducting your own trades, i.e. buy and sell stock without assistance from a stockbroker. The two prime reasons are convenience and low transaction costs.
You also save on brokerage fees and commissions.
How To Trade Without a Stockbroker
When you use a stockbroker, you open an account and fund it, then buy or sell stocks via the stock broker’s site. You could also utilize a full-service stockbroker.
Below are two ways you can buy stock without going through a stockbroker.
Direct Stock Purchase Plans
To invest or buy stocks in the stock market without using a stockbroker, you can use the Direct Stock Plan.
The DSP enables you to purchase shares directly from the company through a company-appointed transfer agent, which is most suitable for small investors. It is simple to implement and allows you to have a better way of communicating with the company.
The main downside to using this method is the lack of diversification since you’d need to work with multiple companies in different sectors.
Dividend Reinvestment Plans
DRIPs are quite similar to direct stock plans. The only difference is that they automate the stock buying process by using cash dividends paid by your stock-owning company to purchase additional shares over the years.
This service might attract a small fee, or it can be entirely free of charge.
Why You Might Still Need To Use a Stockbroker
A stockbroker is valuable to both individual investors and corporations.
This is because stockbrokers are agents licensed to do exchanges, and provide you with access to the exchanges like the NYSE and handle all trade-related clearing and settlement matters.
The process entails ensuring that both parties are creditworthy, can financially settle their trades, and also guaranteeing that they do so.
In addition, stockbrokers:
- Have access to the latest info on viable investments.
- Negotiate the best deals for you.
- Can offer in-depth research into potential investments.
- They assist with keeping up-to-date records.
- Possess cutting-edge knowledge on investment portfolio management as well as general financial planning.
- Can help you uncover unique investment opportunities and offer relevant financial advice.
Given their rich background in financial investment matters, most modern-day stockbrokers have gradually evolved into financial advisors and investment analysts.
Their scope of services has also grown wider and now includes advice on estate planning, taxes, mortgages, and life insurance. They also allow you to invest in other investment products such as bonds, mutual funds, or bank products.
Today’s stockbrokers help their clients build and execute comprehensive, long-term financial investment plans by providing a one-stop shop for all their financial requirements.
The thing is, it might not be that easy to make wise financial investment decisions without the aid of a stockbroker. Choosing between low-index funds, hedge funds, or mutual funds can be overwhelming, and so is creating your personal investment portfolio.
That’s why you might still need to use a stockbroker.
The internet might provide stock traders with an alternative to using stockbrokers, thus leading to fewer traders using traditional stock brokers. However, stockbrokers are still relevant in modern trading.
These financial advisors provide informative, practical, and actionable advice on investing as well as building and managing one’s portfolio.
In a nutshell, the right stockbroker can help you achieve your financial goals. Besides, online trading systems can malfunction, and most people like doing business through trusted personal connections.
Once you’ve chosen one of our top-rated brokers, you need to make sure you’re buying the right stocks. We think there’s no better place to start than with Stock Advisor, the flagship stock-picking service of a company called The Motley Fool.
You’ll get two new stock picks every month, plus 10 starter stocks and best buys now. Over the past 17 years, Stock Advisor’s average stock pick has seen a 566% return — more than 4x that of the S&P 500! (as of 6/17/2021).
Learn more and get started today with a special new member discount.
I'm Donny. I'm a world traveler, investor, entrepreneur, and online marketing aficionado who has a big appetite to compete and disrupt big markets. I thrive on being able to create things that impact change, difficult challenges, and being able to add value in negative situations.More Posts