Home Personal Finance Invest What is a Brokerage Company?

What is a Brokerage Company?

As a retail investor, when you want to buy and sell securities, you’ll do so by logging into your brokerage account. Beyond the ability to transact securities, your choice of broker also offers you a plethora of investing tools: stock charts, screeners, disclosures, company profiles and much, much more. In short, a brokerage company is your all-in-one resource for investing.

There are numerous brokerage companies out there to choose from, each with unique value propositions that appeal to different types of investors. Regardless of the one you choose, it’s important to get familiar with the interface and resources available to you. While your acumen as an investor is what matters most, a robust investing platform is equally as important in your success!

Here’s a closer look at modern-day brokerage companies and the role they play in the success of retail investors. 

The Role of Brokerages Companies

Brokerage companies serve several different purposes. Understanding their role in facilitating market activity lends more insight into why they’re so important. 

First and foremost, brokers facilitate transactions between buyers and sellers. They’re intermediaries who are authorized to buy and sell securities on behalf of users, and deliver those securities post-transaction. Examples include buying and selling stocks, bonds, mutual funds and ETFs.

Second, brokers are financial services providers. Most offer investment products and resources designed to support their customers. These can include everything from powerful robo-advisors to simple stock screeners. By enabling confident investing, brokerage companies encourage market participation. 

Finally, some brokers are also market makers. This means they’re wholesale buyers and sellers who promote market liquidity. In fact, not every broker is a market maker, and vice-versa. 

Discount vs. Full-Service vs. Internet Brokerages

Within the realm of brokerage companies there are three distinct types. And overall, the firm an investor chooses typically depends on the level of support and resources they need and/or are willing to pay for.

  • Discount brokers are the most common type of brokerage company. They provide broad accessibility to retail investors and charge few-to-no fees for basic services. These firms may or may not operate brick and mortar locations; however, most offer customer service assistance. They’re meant for self-enabled investors, and offer robust investing resources. 
  • Full-service brokers tend to serve high-net-worth individuals and institutional investors. These firms operate by staffing advisors and portfolio managers to accounts, who then oversee the success of the portfolio. Full-service brokerages often take an active, hands-on role in managing all of a person’s assets, and provide significant financial planning. 
  • Online brokers are companies and platforms that exist entirely online. They tend to offer a slimmer selection of investing tools and resources, but are also the cheapest option in terms of rates and fees. They’re extremely popular among casual investors. These brokerage companies may not offer access to a full array of investment products. 

Within these primary types of brokerages, it’s also prudent to understand whether your choice of broker is independent or captive. Independent brokers aren’t usually tied to any investment products and operate more in a fiduciary capacity. Captive brokers are either affiliated with certain products or offer their own, and may have incentive to recommend those products. 

A Brief Note About Broker Fees

No matter what type of brokerage company you choose to use, expect to pay fees at some point in time. While it’s true that today’s retail trading environment offers a low-to-no fee structure, most brokerages still charge for certain products and services. Get to know your broker’s fee structure before executing any trades—both to avoid surprises and to cut down on costs. 

FINRA and SEC Registration

All brokers operating through a brokerage company must register with both the Financial Industry Regulatory Authority (FINRA) and the U.S. Securities and Exchange Commission (SEC). This ensures that the firms and the professionals operating them act in the best interests of the account holders they represent. This is a stipulation of the Securities Exchange Act of 1934 (Section 15). 

In addition to registration with both FINRA and the SEC, brokerages must also carry SIPC Insurance. Similar to FDIC insurance for personal bank accounts, SIPC insurance protects customers if the brokerage company fails financially, up to $500,000 per person ($250,000 cash maximum). Note that this doesn’t protect against losses incurred while investing.

Major Brokers in the United States

Looking for a brokerage company? United States investors have their pick of numerous firms. For example, here’s a look at some of the most recognizable and the type of firms they are:

  • Charles Schwab (full-service)
  • Edward Jones (full-service)
  • Merrill Lynch (full-service)
  • Morgan Stanley (full-service)
  • Fidelity Investments (discount)
  • E*TRADE (discount)
  • TD Ameritrade (discount)
  • Vanguard (discount)
  • Robinhood (online)

The type of brokerage company best-suited to each investor depends entirely on their situation. Do you need to consult with someone one-on-one about cultivating your portfolio? A full-service option is likely best. Do you want the ability to trade diverse products and use powerful resources to inform your decisions? A discount brokerage is your best bet. Looking to keep your costs as low as possible while executing basic trades? There’s no beating an online broker. 

The Right Broker Makes All the Difference

Choosing a broker is a big deal. Specifically, everything from the trading interface to the available resources will play a role in your experience as an investor. Make sure you’re opening an account with a broker that has a strong reputation, transparent fees, a user-friendly interface, timely financial data and more. Remember, you might possess incredible investment acumen, but your brokerage company is the key to deploying it.


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