Brokerage services are intermediary services that connect buyers and sellers in markets where you usually can’t transact directly: securities exchanges, real estate, insurance, and the sale of entire businesses. A broker handles access, paperwork, and regulatory compliance in exchange for a commission or fee. The specifics look very different across industries, but in each one the broker has standing, expertise, and access to counterparties that an individual working alone typically does not.
Before hiring any broker, it helps to know what they actually do in your industry, how they get paid, what they legally owe you, and how to check their record.
The Main Types of Brokerage Services
Securities and Investment Brokerage
An investment brokerage gives you access to financial markets you can’t reach on your own. When you place an order, the brokerage routes it to an exchange or trading network, matches it with a counterparty, and handles the settlement paperwork. Full-service firms bundle portfolio management and personalized advice with trade execution. Discount and online platforms strip the advisory layer out and let you place your own orders at a lower cost.
Federal law requires anyone acting as a securities broker to register before doing business. Section 15 of the Securities Exchange Act of 1934 makes it unlawful for an unregistered broker to use any means of interstate commerce to buy or sell securities for someone else.1Office of the Law Revision Counsel. 15 USC 78o – Registration and Regulation of Brokers and Dealers Registered brokers must meet standards for training, experience, and operational capability, and they must maintain written policies to prevent misuse of material nonpublic information. A willful violation of the Act can bring fines up to $5,000,000 for an individual and 20 years in prison. The ceiling for firms is $25,000,000.2GovInfo. 15 USC 78ff – Penalties
If you want to borrow from your broker to buy securities, FINRA rules require a minimum deposit of $2,000 in cash or securities before trading on margin. That jumps to $25,000 if you’re classified as a pattern day trader, meaning you execute four or more day trades within five business days. Margin amplifies both gains and losses. If your account value drops below the maintenance level (at least 25% of market value for long positions, and typically 30% or $5.00 per share for short positions, whichever is greater), the broker issues a margin call. FINRA rules allow up to 15 business days to resolve a deficiency, but most firms give you much less and can liquidate positions sooner if their own risk policies require it.3Financial Industry Regulatory Authority (FINRA). FINRA Rule 4210 – Margin Requirements Pattern day traders who miss a margin call get restricted to cash-only trading for 90 days.
Real Estate Brokerage
Real estate brokers manage the logistical and administrative work of buying or selling property. For sellers, that means listing the home on shared databases, coordinating marketing, and screening potential buyers. For purchasers, it means identifying properties within budget, writing offers, and shepherding the deal through inspection, appraisal, and closing. Behind the scenes, the broker coordinates inspections and appraisals required for mortgage approval, opens escrow, handles title searches, and manages local disclosure requirements so documents reach the recording offices on time.
Watch for dual agency, where the same broker or brokerage represents both the buyer and the seller. An agent can’t argue for the lowest price and the highest price at the same time, so a dual agent becomes a neutral facilitator who can’t give either side strategic advice. About eight states ban the arrangement outright. In states that allow it, brokers must typically disclose it and get written consent from both parties. If you find yourself facing dual agency, having a real estate attorney review the deal independently is worth the cost.
Commissions have been in flux since the National Association of Realtors settled a major lawsuit in 2024. The old model had sellers paying a total commission of 5% to 6% split between the listing agent and the buyer’s agent. Under the new rules, buyer’s agent compensation is no longer advertised on listing services, and buyers negotiate their agent’s fee separately. Early data suggests buyer’s agent commissions now average around 2.4% to 2.5% of the sale price, with the total cost across both agents trending closer to 5%.
Insurance Brokerage
Insurance brokers work for you, not for a single carrier. A captive agent represents one company; a broker represents the policyholder and shops coverage across multiple insurers. The process usually starts with a risk assessment, then a comparison of policies, premiums, exclusions, and coverage limits.
The value shows up when you compare policies side by side. Two policies with similar premiums can carry very different exclusions or deductible structures, and a good broker flags the fine print that could leave you exposed when it’s time to file a claim. One thing worth asking about: contingent commissions, which are payments carriers make to brokers based on the volume or profitability of business the broker sends them. A broker who earns bigger bonuses for placing business with a particular carrier has a financial reason to steer you there even when a competitor offers better terms. Some states require brokers to disclose these arrangements before you buy. Carriers, not policyholders, pay broker commissions, which means the cost is baked into your premium rather than billed to you directly.
Business Brokerage
Business brokers facilitate the sale of entire companies. The engagement typically starts with a valuation, often based on EBITDA (earnings before interest, taxes, depreciation, and amortization), to set a realistic asking price. The broker then prepares an offering memorandum detailing the company’s financial health for qualified buyers.
Confidentiality drives the process. A business for sale can lose employees, customers, and suppliers if word gets out, so brokers rely on non-disclosure agreements and share financials only with buyers who have been vetted for financial capability. The broker’s work is particularly valuable during due diligence, when buyers scrutinize tax returns, customer contracts, and operational records.
Business brokers typically earn a success fee as a percentage of the final sale price, often structured as a variation of the Lehman formula. The original version charges 5% of the first $1 million, 4% of the second, 3% of the third, 2% of the fourth, and 1% on everything above $4 million. Inflation has made the “Double Lehman” or “Modern Lehman” formula more common, doubling each tier. Success fees are separate from any upfront retainer the broker charges to take the engagement.
What a Broker Legally Owes You
Not every financial professional owes you the same duty, and the difference matters.
Registered investment advisers operate under the Investment Advisers Act of 1940 and owe you a fiduciary duty. They must act in your best interest and fully disclose any conflicts that could bias their recommendations. Broker-dealers were historically treated as salespeople and held only to a suitability standard, meaning they could recommend products appropriate for your situation without necessarily recommending the best available option.
That gap narrowed in 2020 with the SEC’s Regulation Best Interest (Reg BI). Reg BI requires broker-dealers to act in the retail customer’s best interest at the time of a recommendation, without placing their financial interest ahead of yours. The SEC specified that disclosure alone does not satisfy the standard.4U.S. Securities and Exchange Commission. Regulation Best Interest – The Broker-Dealer Standard of Conduct Broker-dealers must meet four component obligations covering disclosure, care, conflicts of interest, and compliance. The conflict obligation requires firms to mitigate or eliminate incentives that could push representatives to prioritize firm revenue over customer welfare.
Every broker-dealer and investment adviser must give retail customers a relationship summary called Form CRS. The document uses prescribed language to describe services, fees, conflicts, and standard of conduct, and it requires a yes-or-no disclosure about any disciplinary history, with a reference to Investor.gov/CRS for further research.5U.S. Securities and Exchange Commission. Frequently Asked Questions on Form CRS If your broker hasn’t handed you one, ask. It’s required.
Investment advisers also file Form ADV. Part 2A is the adviser’s narrative brochure, covering fee schedule, investment strategies, and conflicts of interest. The filing is public, and you can read it before signing on.6U.S. Securities and Exchange Commission. Form ADV – General Instructions
What You’re Really Paying
Fee models shape the advice you get, so it pays to understand them before you commit.
Most major online securities platforms now charge $0 for trading listed stocks and ETFs. Schwab, for example, charges nothing for online stock and ETF trades, though OTC equities still carry a $6.95 fee.7Charles Schwab. Pricing – Account Fees Options trades typically add a per-contract fee. Zero-commission does not mean free. These platforms earn revenue through other channels, most notably payment for order flow, where the broker routes your order to a market maker who pays for the right to execute it. The SEC requires brokers to disclose these arrangements.8U.S. Securities and Exchange Commission. Special Study – Payment for Order Flow and Internalization in the Options Markets
If your brokerage recommends mutual funds, look for 12b-1 fees buried inside the expense ratio. These are annual fees deducted from fund assets to pay for marketing and distribution costs, including ongoing payments to the broker who sold you the fund. Class C shares commonly carry a 1% annual 12b-1 fee; other share classes may charge 0.25%. Those small percentages compound meaningfully over a decade.
Real estate and business broker fees are percentage-based, which means the broker earns more on higher-priced transactions. That aligns with sellers but can work against buyers. Insurance brokers earn commissions from carriers, plus potentially contingent commissions tied to volume or loss ratios. Ask any broker to disclose all compensation arrangements before you sign.
How to Verify a Broker Before You Hire
Two free government-backed tools let you check a broker’s background before handing over any money.
FINRA’s BrokerCheck covers anyone currently registered as a broker or registered within the last 10 years. A report includes employment history inside and outside the securities industry and a disclosure section covering customer disputes, disciplinary actions, and certain criminal and financial matters. Firm reports include arbitration awards and disciplinary events on the firm’s record.9FINRA. About BrokerCheck Some disclosed items may involve pending allegations, so read the details rather than reacting to the presence of a disclosure alone.
For investment advisers, the SEC’s IAPD database lets you search firms registered with the SEC or state authorities. You can read the current Form ADV filing, check registration status, and review background information on individual representatives. The system links directly to BrokerCheck if the adviser is dually registered as a broker.10U.S. Securities and Exchange Commission. Using IAPD
One boundary to understand before you open a securities account: SIPC protection. If your brokerage fails, the Securities Investor Protection Corporation covers up to $500,000 in securities and cash held at a member firm, with a $250,000 sublimit for cash.11SIPC. What SIPC Protects This is not the same as FDIC insurance on bank deposits. SIPC covers you if the brokerage goes under and your assets are missing. It does not protect you against investment losses from market declines or bad advice.
If Something Goes Wrong
Unauthorized trades, excessive churning, misleading recommendations: you have options beyond complaining to your broker’s compliance department.
FINRA operates a dispute resolution system that handles most investor-broker conflicts, and FINRA member firms must participate if a customer initiates a claim. You can pursue arbitration, which works like a streamlined court proceeding where independent arbitrators review evidence and issue a binding decision, or mediation, a voluntary negotiation where a neutral mediator helps both sides reach a settlement.12FINRA. Arbitration and Mediation Arbitration tends to be faster and cheaper than litigation, though the binding nature means you generally can’t appeal.
You can also file a complaint directly with FINRA’s Investor Complaint Center, even while arbitration or mediation is pending. For investment advisers who aren’t broker-dealers, complaints go to the SEC or your state securities regulator. File sooner rather than later. Statutes of limitations apply to these claims the same way they do in court.