How familiar are you with trades? It may seem easy to buy and sell stocks with so many online tools out there. However, there are benefits to hiring a licensed professional. To determine if you need a stockbroker, learn more about what this financial agent does, and how they can help manage your investments.


Understanding a Stockbroker’s Role

A stockbroker acts as the middleman/woman between you and the trade market, in which you purchase and sell stocks. He or she may provide full services, including comprehensive research, insurance options, and tax assistance, or mainly just trading transactions. Someone who does only the latter is termed a discount brokerage. Whether independent or working through a firm such as Morgan Stanley or Merrill Lynch, stockbrokers register with the SEC (Securities and Exchange Commission) and must uphold fiduciary standards. These include:

  • Disclosing all information related to a trade
  • Adhering to your goals and best interests
  • Avoiding conflicts of interest that put their own gains ahead of yours


Hiring a Stockbroker

You should choose a stockbroker similarly to choosing other important business deals. Shop around, research backgrounds and reputations, and ask others for recommendations. Check for Securities Investor Protection Corporation (SIPC) coverage, which replaces many investments should the brokerage declare bankruptcy. Additionally, consult the SEC’s “Checking Out a Brokerage Firm, Individual Broker, Investment Advisor Firm, or Individual Investment Advisor” resource guide for finding out more information about prospective agents.

It’s also a good idea to find out the minimum for opening an account, and what fees go along with the services and transactions. There may be annual and/or maintenance fees, along with commissions, averaging 1-2% per sale or purchase, or at flat rates.


Online Trading Versus Stockbroker Assistance

Online trading with companies like Charles Schwab, TD Ameritrade, and E-Trade appeal to many because of their convenience. However, just as there are benefits to hiring a bookkeeper to assure accurate accounting, it’s better to hire a stockbroker when you’re new to trading. Online brokerage typically doesn’t give you the personal rapport that you develop by physically interacting with a stock broker.

When you’re new to buying and selling stocks, it’s important to directly communicate with someone who has a comprehensive understanding of financial laws, regulations, and strategies. Furthermore, consider the risks of incurring inactivity fees, and difficulties claiming liability for breached data/unauthorized transactions that may occur online.


Stock Options to Consider

Stocks give their purchaser equity ownership, without doing any of the work. Some also include voting rights, giving shareholders the ability to help decide on corporate actions and board of director membership. Choosing the right stockbroker involves figuring out who can best apply your financial interests. Stock options include:

  • Common: Although common holders have voting rights, priority for dividend pay-outs go to preferred holders
  • Preferred: Pre-determined periods and amounts for dividend pay-outs. Does not include voting rights.
  • Hybrid: Also known as convertible preferred stocks, these shares may become a common shares at a pre-determined time. Voting rights vary.
  • Market capitalization: Stocks in this category are labeled according to company size – small, mid, and large cap. Small-cap may either increase or decrease quickly in value, whereas the mid and large-cap have slower and often steadier gains.
  • Blue-chip: Often reliable for steady value.

Keep in mind that stock dividends are taxable, if you sell them (the difference between your purchase and selling costs). Capital gains are considered “short-term,” and part of your income if you have had the share for less than a year. If you have owned it for more than a year, then the “long-term” assets are taxed at 15%-20%, depending upon income tax bracket. Capital losses are treated as deductions.


Stockbrokers Give You More Time for Other Pursuits

As empowering as it is to manage your own investments, a stockbroker can teach you a lot about managing your financial portfolio. You can then apply more time to focusing on other interests and plans for how to spend future savings.


PHOTO: Pixabay / CC0 Public Domain