The Stockbroker


To buy stock it's necessary to have a stockbroker, since you cannot buy stock directly from the company that issues the stock. The stockbroker is an account executive (AE), or registered representation, at a brokerage firm. The firm may be a member of the New York Stock Exchange (NYSE), which will sometimes mean that the broker has completed a training course and passed NYSE and National Association of Securities Dealers tests before being approved by the Securities and Exchange Commission.

Account executives, according to the Wall Street mythology, are supposed to follow a strict code of ethics and obey a number of SEC and NYSE rules. For example, a broker is not supposed to guarantee a client against a loss. The AE is not supposed to share in the profit from a client's account. And the broker is not supposed to rebate any of their compensation to clients. All these rules are honored much more in the breach.

The brokerage firm charges a commission each time stock is bought or sold, the broker receiving a percentage of that fee. Brokerage fees have been negotiable since May, 1975. A stockbroker's income, then, increases if stock is bought and sold as frequently as possible, which often is not to the investor's advantage.

Discount brokerage firms offer low commissions and "no-frills" services. They sometimes require a modest deposit or a minimum annual commission.

These are some of the questions you might want to ask a broker before deciding to go with him or her:
  • How many years have you been working as a broker?
  • How long have you been with this firm?
  • What training do you have and where did you receive the training?
  • What criteria do you use to buy stocks and sell stocks?
  • Do you consult with your clients before purchasing stocks for their account?
  • What was your record last year versus the Dow Jones Industrial Average?
  • What is your commission rate schedule?
  • Are you willing to answer any questions I might have at any time?