Stockbrokers are licensed professionals who buy and sell securities on your behalf, routing your orders to exchanges and market makers you can’t reach directly. What do stockbrokers do beyond placing trades depends on the type of broker: a discount platform simply executes your orders at low or zero cost, while a full-service broker also researches investments, recommends what to buy and sell, manages your overall portfolio, and handles the tax paperwork that comes with an active account. All of them work under federal rules that require diligent handling of your orders, and brokers who recommend investments to retail customers must meet a best-interest standard when they do.
Executing Your Trades
The core function is agency: when you submit an order, your broker acts as your agent and routes it through a network of market makers or directly to exchanges like the New York Stock Exchange. Algorithms decide the path based on price, speed, and the likelihood the order fills completely.
The order type you choose controls how much say you have over price. A market order guarantees execution but not price; it fills at whatever the best available price is when it arrives. A limit order sets a ceiling when you’re buying or a floor when you’re selling, and only executes if the market meets your number.1Investor.gov. Types of Orders For large-cap stocks in calm markets, market orders usually work fine. For thinly traded securities or volatile sessions, limit orders keep you from getting a fill you didn’t expect.
Brokers are legally required to seek best execution, meaning they must use reasonable effort to obtain the most favorable price available under current market conditions.2Federal Register. Regulation Best Execution The duty flows from agency law: the broker works for you and owes you diligent care on your trade. In practice, it means the broker cannot dump your order at a convenient venue if a better price is available elsewhere.
Advice, Research, and Portfolio Management
Full-service brokers do more than push buttons. They read financial statements, earnings reports, and economic data, and translate that into recommendations: buy this stock, shift into bonds, add international exposure. Large firms staff their own analysts and publish proprietary research; smaller firms often lean on third-party providers. This advisory role is what you pay premium fees for compared with a discount platform that gives you a search bar and a buy button.
Brokers who manage accounts also watch your overall allocation. When markets push your mix out of line, say a stock rally leaves you at 80/20 when you wanted 60/40, the broker rebalances back toward your target. The supervision is about whether the portfolio still fits your goals, not just whether any single position moved.
Some brokers layer in tax-aware strategies like loss harvesting: sell a losing position to realize a deductible loss, then reinvest in something similar to keep the portfolio pointed the same direction. The catch is the IRS wash sale rule, which disallows the deduction if you buy a substantially identical security within 30 days before or after the sale; the disallowed loss gets added to the cost basis of the replacement shares instead.3Internal Revenue Service. Case Study 1: Wash Sales A broker managing your account should be tracking this for you.
Paperwork and Moving Your Account
Administrative work comes with the territory. Your brokerage generates Form 1099-B each year, reporting proceeds from every securities sale to you and to the IRS.4Internal Revenue Service. About Form 1099-B, Proceeds from Broker and Barter Exchange Transactions You also receive consolidated performance reports. A good back office handles the record-keeping automatically.
If you change firms, the transfer typically runs through the Automated Customer Account Transfer Service. When it goes smoothly, ACATS moves your holdings within six business days of the new firm entering the request.5U.S. Securities and Exchange Commission. Transferring your Brokerage Account: Tips on Avoiding Delays Realistically, plan on two to three weeks once paperwork and any unusual assets are factored in. Most firms charge a transfer-out fee, so check that before you start.
How Stockbrokers Get Paid
How your broker earns money shapes the advice you get, which is why compensation deserves careful attention.
Trade Commissions
The old model charged a commission on every trade, anywhere from a few dollars at discount brokers to $50 or more at full-service firms. Most major online brokers now offer commission-free stock and ETF trades, so the per-trade cost is effectively zero for basic transactions. Full-service firms still charge commissions, but the pitch has moved to the advisory relationship and research access rather than the mechanical placement of the trade.
Payment for Order Flow
When a trade costs you nothing, the broker is still earning revenue somewhere. One common source is payment for order flow: market makers pay the broker for the right to execute your orders. That creates tension, because the broker has a financial incentive to route to whichever market maker pays the most, which may not always be the venue giving you the best price. Federal rules require brokers to publicly disclose these arrangements every quarter, including dollar amounts received per share for each order type.6eCFR. 17 CFR 242.606 – Disclosure of Order Routing Information You can also request a report showing where your own orders went over the previous six months.
Asset-Based Fees
Managed accounts usually charge an annual percentage of assets under management. The industry average for a fee-only adviser hovers around 1%, and rates tend to drop below 1% above $1 million. On a $500,000 portfolio at 1%, you’d pay about $5,000 a year. Compensation grows with the account, which aligns some interests, but you pay whether or not the adviser did anything useful that year.
Smaller Fees That Add Up
Brokerages commonly charge for account transfers, paper statements, wire transfers, and options contract execution. Some charge annual maintenance fees or inactivity fees if you don’t trade within a set period. These charges are often buried in the fee schedule rather than featured upfront. The Form CRS your firm is required to give you summarizes the principal fees, and it’s the first document to check.
The Standards Your Broker Must Meet
The SEC and FINRA jointly oversee the brokerage industry. FINRA, a self-regulatory organization, directly regulates more than 3,400 securities firms operating in the United States, and the SEC oversees FINRA and sets the broader framework.7U.S. Government Accountability Office. Securities Regulation: SEC’s Oversight of the Financial Industry Regulatory Authority
When a broker recommends an investment to a retail customer, the applicable standard is Regulation Best Interest, which took effect in June 2020. Reg BI requires brokers to act in your best interest at the time of a recommendation, and it breaks into four obligations:
- Disclosure: the broker must provide a written summary of the relationship, fees, and any conflicts of interest before or at the time of a recommendation.
- Care: the broker must exercise reasonable diligence in evaluating the risks, costs, and rewards of a recommendation and form a reasonable belief that it fits you specifically.
- Conflict of interest: the firm must maintain written policies to identify and address conflicts, including sales contests, quotas, and bonuses tied to specific products.
- Compliance: the firm must maintain written procedures to ensure the other three obligations are followed.
The care obligation is where this becomes practical. A broker can’t recommend whatever product pays the highest commission; they must weigh whether it fits your investment profile, including your age, financial situation, risk tolerance, and existing holdings.8U.S. Securities and Exchange Commission. Staff Bulletin: Standards of Conduct for Broker-Dealers and Investment Advisers Care Obligations
Brokers who are also registered as investment advisers operate under a higher standard. The fiduciary duty under the Investment Advisers Act of 1940 requires them to put your interests ahead of their own at all times, not only at the moment of a recommendation, and it encompasses both a duty of care and a duty of loyalty.9U.S. Securities and Exchange Commission. Commission Interpretation Regarding Standard of Conduct for Investment Advisers If your professional wears both hats, pay attention to which capacity they’re acting in for any given recommendation, because the standard shifts with the role.
Form CRS
Every brokerage firm and investment adviser that works with retail investors must deliver a document called Form CRS, a short relationship summary designed to be readable by ordinary people. It covers the services the firm offers, the fees you’ll pay, the conflicts of interest that exist, and any disciplinary history the firm or its professionals carry.10Federal Register. Form CRS Relationship Summary; Amendments to Form ADV It also specifies whether the firm sells a full range of products or only proprietary ones, whether it monitors your investments on an ongoing basis, and what account minimums apply. If your broker earns more selling you an in-house mutual fund than a cheaper index fund, that conflict should appear here.
Checking a Broker and Getting Help When Something Goes Wrong
FINRA maintains a public database called BrokerCheck that shows every firm a broker has worked for, current licenses, and any disciplinary events, customer disputes, or criminal matters on their record.11FINRA.org. About BrokerCheck Records stay available even after a broker leaves the industry if they were subject to a regulatory action, a criminal conviction, or certain arbitration awards. The check takes about two minutes.
If you believe your broker mishandled your account, the standard path is FINRA arbitration. You file a statement of claim, pay a filing fee, and the case goes to a panel of arbitrators. The respondent has 45 days to answer, both sides exchange documents during discovery, and the case proceeds to a hearing. Arbitrators typically issue a decision within 30 days after the hearing ends.12FINRA.org. FINRA’s Arbitration Process Most brokerage account agreements include a mandatory arbitration clause, so this process, not a courtroom lawsuit, is how the majority of investor disputes get resolved.
If your brokerage firm fails, the Securities Investor Protection Corporation steps in to help recover your assets. SIPC protection covers up to $500,000 per customer, including a $250,000 limit for cash.13SIPC. What SIPC Protects What SIPC does not cover is a decline in the value of your investments, losses from bad advice, or worthless securities you were sold. If the market crashes and your portfolio drops 40%, SIPC won’t make you whole. If your firm collapses and your shares go missing from the books, SIPC works to restore them.
A Word on Margin Accounts
Not every brokerage account is a cash account. A margin account lets you borrow money from your broker to buy securities, with the securities themselves as collateral. Federal Reserve Board Regulation T generally allows brokers to lend up to 50% of the purchase price of marginable securities, so you put up half and borrow half.14FINRA.org. Margin Regulation FINRA rules require a minimum equity level after the initial purchase, and many firms set their own requirements above the regulatory floor.
Gains on borrowed money multiply your returns; losses multiply just as fast, and you still owe the loan plus interest. What catches most people off guard: if your account value falls below the maintenance requirement, the broker can sell your securities immediately to cover the shortfall. No rule requires the broker to call you first or give you time to deposit more funds. Even if the broker contacts you with a deadline, they can still liquidate without further notice if they decide their financial interest is at risk, and you don’t get to choose which positions they sell.15FINRA.org. Notice to Members 00-62 This is where a margin account moves from useful tool to serious loss for investors who skipped the fine print.