Technology has changed the way we invest. Most investors have gone from making investments through a full service brokerage house and a personal stock broker to an online discount brokerage account where they enter their own trades. The reasons for the shift in behavior are many, but the most important are the lower transaction costs and the convenience.
Before the evolution of the internet and the ability to open an investment account online, if you wanted to trade and invest in the stock market, you did your business through a stock broker. You would usually associate yourself with a large brokerage house and then be assigned a stock broker to handle your account.
Your personal broker was there to assist you with any transactions you wanted to make. The stock broker would also make recommendations about certain stocks to buy and help you build and add to your portfolio. A stock broker is part counselor and part salesman. The former being the way he justifies his position and the latter being the way he makes a living.
Traditional stock brokers earn money primarily through the amount of activity they generate. The more transactions they handle, the more they earn in commissions. A successful stock broker will have a number of regular clients that trade more than a few times during the year. Really successful brokers will have very wealthy clients with large accounts that are actively managed. Frequent high dollar transactions are the lifeblood of the traditional stock broker.
So, what has happened to the traditional stock broker? Has he or she been rendered largely obsolete by the discount brokerage houses and online trading sites that charge commissions of $10.00 or less on most transactions? If you look closely into the entire universe of investors you will see that there are two groups of investors. Individual investors have turned to online investing and investing through discount brokers. Corporate or business investors still rely largely on investing with major brokerage houses and an experienced stock broker.
A stock broker can be a valuable asset for both individuals and corporate entities because they have both the knowledge and know-how to handle an investment portfolio. They are privy to the latest information and have the time and capability to provide in depth research into a potential investment.
If you are an active investor, you can benefit by having two accounts. A full service stock broker can help you find unique investing opportunities and give you some good advice. A low commission discount broker can be beneficial to a Day-Trader or someone that makes many trades each month.