Are Brokers Called BROKErs Because They Make You Go Broke?

This post should perhaps have been titled How to Choose a Broker or maybe asked the question Do You Really Need a Broker? While it is indeed about the best practices surrounding your choice of a broker, I thought it would be much more interesting to look at it from the point of view of the Mark Hanna character played by Matthew McConaughey in the 2013 blockbuster film, The Wolf of Wall Street, when he was imparting some invaluable broker knowledge to Jordan Belfort’s character, played by Leonardo DiCaprio.  “The name of the game-,” he said, “moving the money from the client’s pocket to your pocket.”

Now that specific broker was referring to Wall Street and its practice of charging clients a brokerage fee, and perhaps a performance fee too, for trading stocks on their behalf. Today though, lots of investors use equity trading platforms as a means through which to access the markets they want to trade and invest in more directly. It seldom occurs in this day and age for your broker, who is in direct employment of an investment company you might have been cold-called and convinced to invest through, to call you up during office hours and request your go-ahead for them to put more of your money into the latest and greatest investment they’ve picked out to be “sure winner.”

A New Type of Broker

If you do indeed trade equities – even if you facilitate your trades using a digital platform – you may not even be fully aware that you actually have a broker. Financial institutions are the new brokers, taking the primary form of the main bank you use, even if it’s just for your personal banking requirements. Some banks do indeed refer to it as their brokerage division, but banks and their digitized trading platforms built into the functionality of your normal bank account have now assumed the role of brokers.

This leads us back to our burning question however, of whether or not brokers are only out to get your money via trading commissions and service fees.

What’s in a Broker?

Bear in mind that it isn’t always a black-and-white picture with clearly-defined boundaries, but you can generally tell whether or not a specific broker is a good fit for your investment needs by taking a closer look at how frequently they communicate with you, particularly with regards to new investments, or if they constantly encourage you to take some sort of action. Old-school brokers like Mike Hanna’s character were called brokers because they do indeed “make you go broke” (unofficially of course), but new-style brokers like the big banking institutions that offer brokerage services are generally more of a help than just another service to have to pay for.

The modern-day broker may not explicitly declare themselves to be your broker and that’s the type of broker any investor could really do with in their lives. Such brokers which are in actual fact brokerage divisions of a bigger financial institution rely more on the collective fees and commissions they collect from a much, much wider pool of clients, traders, and investors, which makes the fees and commissions they charge much less. This paves the way for you to focus on your investment and trading strategy without even realizing that you’re using the services of a broker.

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