The Need for Stockbroker Explained | Kotak Sec | IndiaNotes.com
A stockbroker, also known as share broker, is a representative who executes buy and sell trades in shares and other products on behalf of the investors in share market. For most retail buyers, brokers are the people they call when they want to invest in shares. Generally, individual brokers work in offices that are far away from the actual stock exchanges.
Here are the important roles played by the share brokers.
1. Procure the best deal
When an investor wants to buy or sell shares, the broker tries to procure the best deal. Most brokers deal in shares as well as other securities including commodity futures. Individual brokers may offer stock trading tips; however, they may not be certified financial advisors.
2. Trade handling
A broker will take the order from the investor and pass it on to the floor brokers or may electronically execute the trade. Some brokers may execute trades on the phone or personally on the trading floor. On successful completion of the transaction, the broker provides the information to the clients, arranges for the necessary documentation, and ensures the securities are duly transferred.
3. Customer servicing
Most share brokers, even those who work for larger trading companies must maintain their own client list. Acquiring new clients and providing superior services to them are important responsibilities of brokers. They may need to call clients and develop additional relationships with industry professionals. Clients rely on the brokers for stock trading deals, which is why there must be a strong foundation of trust. Additionally, the brokers must periodically provide updates on the performance of the clients’ portfolios. Moreover, they must communicate all potentially good investment opportunities.
4. Advice and disclosure
It is important that the brokers clearly communicate all-important information related to investments, which also includes details about the potential risks. It is vital that brokers do not hide any information from their clients. In addition, they must provide only true and accurate details to ensure the customers are not misled to make incorrect investment decisions.
5. Offer investment recommendations
It is very important that brokers clearly understand the financial situation, investment goals, and risk appetite of their clients. Based on this understanding, the broker must evaluate and analyze different investment options. It is crucial that share brokers select only those investment products that most appropriately match the requirements of their clients.For example, if a client is risk-averse, investing in small cap stocks is not the right choice.
Most brokers earn a commission as a percent of the total investment value. However, the commission and brokerage fees may vary from one broker to another. Some firms known as discount brokers may provide stock trading at a standard fee. Investors must evaluate the different service providers and choose the one that best suits their personal needs. They may read the reviews and comments offered by other users to make an informed decision.
Stockbrokers earn commissions, which is why there is a risk of conflict between their interests and those of the clients. However, these service providers have a fiduciary duty to put their clients’ interests before their own.