How Do Stock Brokers Get Paid? Commissions, Order Flow, and Fees

Stock brokers get paid in several ways at once: payment from wholesale market makers for routing your orders, interest on margin loans and idle cash, distribution fees baked into mutual funds, a percentage of assets under management for advisory accounts, revenue from lending out shares, and a schedule of account service fees. Commissions on stock trades, once the core of the business, are $0 at most major U.S. online brokers. The money still flows; it just comes from places that don’t appear on a trade confirmation.

What’s Left of Trading Commissions

Per-trade stock commissions largely disappeared in late 2019 after Charles Schwab cut its commission to zero and competitors matched within weeks. Fidelity, Vanguard, Schwab, and most other large online brokers now charge $0 for U.S. stock and ETF trades.1Fidelity. Trading Commissions and Margin Rates

Commissions still show up in a few places:

Payment for Order Flow

When you place a stock order on a zero-commission platform, the broker doesn’t route it straight to a public exchange. It sends the order to a wholesale market maker, such as Citadel Securities or Virtu Financial, which pays the broker for the opportunity to fill it. Two firms alone handle 60 to 70 percent of all retail order flow.3U.S. Securities and Exchange Commission. How Does Payment for Order Flow Influence Markets

Per-share payments are small. SEC research found payment-for-order-flow rates of roughly 0.8 basis points for stock orders and about 8 basis points for options orders.3U.S. Securities and Exchange Commission. How Does Payment for Order Flow Influence Markets A basis point is one-hundredth of a percent, so a $10,000 stock trade might generate about $0.80 for the broker. Multiplied across millions of orders a day, the revenue is substantial.

The market maker earns its own money from the bid-ask spread, sometimes offering “price improvement” over the best public quote. How much improvement you actually see depends on order size, security, and the specific arrangement between broker and market maker.

You can look this up. SEC Rule 606 requires brokers to publish quarterly reports naming the venues that received their order flow, any payment arrangements, and how execution quality or payments vary by order type.4U.S. Securities and Exchange Commission. Responses to Frequently Asked Questions Concerning Rule 606 of Regulation NMS These reports stay on the broker’s website for three years and are free to access.

Interest on Margin Loans and Cash

Lending is one of the most profitable lines at every major brokerage. It runs in both directions: charging you interest when you borrow, and earning interest on cash you haven’t invested.

Margin Loans

Federal Reserve Regulation T lets you borrow up to 50% of the purchase price of marginable securities.5eCFR. 12 CFR Part 220 – Credit by Brokers and Dealers The broker supplies the loan and charges interest on the balance. Rates are tiered by loan size. At Fidelity, as of late 2025, the effective rate runs from 7.50% for balances above $1 million up to 11.825% for balances under $25,000.1Fidelity. Trading Commissions and Margin Rates

FINRA requires you to maintain equity of at least 25% of the current market value of the securities.6FINRA.org. 4210. Margin Requirements Many brokers set higher house requirements. If you fall below, the broker can demand more cash or liquidate your positions without asking.

Cash Sweeps

Idle cash in your brokerage account usually gets swept automatically into partner bank deposit accounts or money market funds. The bank pays the broker one rate; the broker passes you a lower rate and keeps the spread. Across billions of dollars of aggregate customer cash, that spread is significant revenue. The SEC has scrutinized sweep programs for conflicts of interest, particularly where brokers default customers into low-yield sweeps when higher-paying alternatives sit on the same platform.7U.S. Securities and Exchange Commission. Investor Bulletin – How Fees and Expenses Affect Your Investment Portfolio

Mutual Fund Distribution Fees

Brokers receive indirect compensation when they sell certain mutual funds. The money comes out of the fund’s assets rather than a separate bill to you, but it still reduces your returns.

The main mechanism is the 12b-1 fee, named for the SEC rule authorizing it. Mutual funds can charge up to 0.75% of assets per year for distribution and another 0.25% for shareholder servicing, a combined ceiling of 1.00% annually.8U.S. Securities and Exchange Commission. SEC Proposes Measures to Improve Regulation of Fund Distribution Fees and Provide Better Disclosure for Investors Most of that money flows to the broker who sold the fund. SEC research found that about 63% of 12b-1 fee revenue is used for broker-dealer compensation.9SEC.gov. The Costs and Benefits to Fund Shareholders of 12b-1 Plans

Share class determines how the fee is packaged:

  • Class A shares typically charge a high upfront sales load, often 3% to 5.75%, with a small ongoing 12b-1 fee around 0.25% per year.
  • Class B shares skip the upfront load but carry a higher 12b-1 fee and a back-end load if you sell within several years.
  • Class C shares charge a small or no upfront load but carry a 12b-1 fee near the 1.00% maximum for as long as you hold the fund.

A broker recommending Class C shares earns ongoing annual revenue; a broker recommending a low-cost index ETF earns nothing on that position. That conflict is why the disclosure rules described below exist.

Assets Under Management Fees

Full-service firms and registered investment advisers usually charge a percentage of your portfolio value rather than per-trade commissions. The industry median sits around 1% per year. Fees range from roughly 0.25% at automated robo-advisor platforms to 2% at some traditional firms. On a $500,000 portfolio at 1%, that’s $5,000 a year, usually billed quarterly.

The percentage compounds against you. A 1% annual fee on a portfolio earning 7% per year consumes roughly one-seventh of the return before fund expenses or taxes.

Most firms use breakpoint pricing: the percentage drops as your balance crosses thresholds. A firm might charge 1.5% on the first $500,000, 1.0% on the next $500,000, and 0.75% above $1 million. If your balance sits near a threshold, consolidating accounts or adding assets can push you into a lower tier, and some advisers negotiate, particularly above $1 million.

Securities Lending

Brokers can lend shares held in customer accounts to short sellers and other institutional borrowers, who pay a fee. If you have a margin account, your brokerage agreement typically already gives the firm the right to lend your shares. For shares in a cash account, the broker needs your written consent through a fully paid lending program, which comes with specific risk disclosures, including a warning that SIPC protection may not cover lent shares.

Some brokers share a portion of the lending revenue with you; others keep all of it. Hard-to-borrow stocks generate meaningful income; widely held blue chips generate very little. If you’re offered a fully paid lending program, read the terms, particularly what happens to your shares if the borrower defaults.

Account and Service Fees

Beyond investment-related charges, brokers collect administrative fees listed in your account agreement rather than on trade confirmations.10SEC. Investor Bulletin – How Fees and Expenses Affect Your Investment Portfolio Common ones include:

  • Account transfer (ACATS) fees when you move investments to another broker. E*TRADE charges $75, Robinhood charges $100, and Schwab charges $0 to $50 depending on account type. Many receiving brokers reimburse this fee if you ask.
  • Wire transfer fees, typically $20 to $35 for domestic outgoing wires.
  • Inactivity fees, though these have become less common among major online brokers.
  • Paper statement fees for physical mail delivery instead of electronic.
  • Account closing fees at some firms, sometimes on top of the ACATS charge.

None of these are large individually, but they accumulate. Every brokerage publishes its fee schedule; five minutes with it before opening an account is worth the time.

What Brokers Have to Tell You About How They’re Paid

Since June 2020, SEC Regulation Best Interest has required brokers to act in your best interest when recommending securities or investment strategies, and to disclose their compensation-related conflicts of interest before or at the time of the recommendation.11eCFR. 17 CFR 240.15l-1 – Regulation Best Interest The broker must tell you in writing about the material fees and costs that apply to your transactions, holdings, and accounts, along with any conflicts tied to their recommendations.

Brokers also give you a Form CRS (Customer Relationship Summary), a short document outlining services, fee structures, and conflicts. The SEC has stated that Form CRS alone doesn’t satisfy the full disclosure obligation; brokers typically need to provide additional detail.12U.S. Securities and Exchange Commission. Frequently Asked Questions on Regulation Best Interest

One distinction matters. Brokers operate under Regulation Best Interest; registered investment advisers operate under a fiduciary duty established by the Investment Advisers Act of 1940. The fiduciary standard is generally considered stricter because it includes an ongoing duty to monitor your portfolio and requires the adviser to put your interests first at all times. Under Reg BI, a broker must act in your best interest at the time of a recommendation but has no automatic obligation to monitor your account afterward. If you’re not sure which standard applies, ask whether the person is registered as a broker-dealer, an investment adviser, or both. The answer changes what they owe you.

How These Fees Affect Your Taxes

Commissions and transaction fees you pay when buying investments aren’t deductible on their own. The IRS treats them as part of your cost basis, adding to the purchase price and reducing your taxable gain (or increasing your loss) when you sell.13IRS. Publication 550 (2024), Investment Income and Expenses

Before the 2017 Tax Cuts and Jobs Act, investors could deduct investment advisory fees and certain other brokerage expenses as miscellaneous itemized deductions. That deduction was suspended starting in 2018, and the One Big Beautiful Bill Act, signed into law on July 4, 2025, made the elimination permanent.14IRS. One, Big, Beautiful Bill Provisions AUM fees, financial planning fees, and IRA custodial fees are not deductible for individual taxpayers in 2026 or any future year.

Investment interest expense survives. If you borrow on margin to buy taxable investments, the interest is deductible up to your net investment income for the year, claimed on IRS Form 4952.