For those who decide to go through their training and become a stockbroker, there’s going to be 3 different services you can either offer yourself, or find employment in, making room for you to specialise in one particular service. This can have its advantages and disadvantages, as on the one hand, specialism in any field, narrows down job opportunities, but it yields a higher salary.
On the other hand, being skilled and experienced in all 3 services, leaves you with more job opportunities.
Offering a stock brokering discretionary service, you’d meet and discuss clients objectives. In this position, the broker takes full control of the investment portfolio, making investments in line with the clients agreed risk level. This won’t be permission based, where a stockbroker will speak with the client prior to trading, to ensure their client agrees and knows the risk level prior to each trade.
Instead, a discretionary service is offered where the investments are made at the stockbrokers’ discretion and not of the clients. A great deal of trust is needed to successfully offer this service.
Therefore, people skills are extremely important.
In this line of work, you won’t actually be making trades. This is a handy professional service for those who find the stress of brokering too high, and want to move away from the market exchange.
Instead of making investments on behalf of clients, you can offer advice to people who are interested in stocks and shares, recommending the best places to invest. Market analysis reports can also be offered to assist clients make better decisions about where to place their investments.
An execution-only stockbroker places the trades on behalf of their clients. You’d be the intermediary between your client and the stock exchange. Advice will be offered, but you won’t be trading at your discretion. Instead, you’d advise clients on good stocks, and offer your opinion, based on your research about what stocks you feel are a good buy, and what ones are at a high point, to sell out at.
Based on the advice you provide your clients, they will make the decision and instruct you on whether to place the trade, or sell it. Strong communication skills are essential so that clients know all the risks involved.
When you first start out in the stock brokering profession, brokerage firms will look for candidates who can deliver all 3 services to their clients. At first point with clients, you’ll be offering an advisory service, and getting an understanding for the clients’ goals. From there, you’d come to an agreement on whether a discretionary service would meet your clients goals, or if an execution-only service would be more applicable. Upon agreement between both parties, you could either be placing the trades on behalf of clients, at your discretion, or advising on stocks and share, then executing them based on your clients instructions.
Larger firms will also offer a variety of other financial services, such as mutual funds, cash ISAs, (individual savings accounts) SIPPS, (self-invested personal pensions) and perhaps CTF (child trust funds) accounts.
The goal of a stockbroker is always to assist clients build wealth, and that will involve risk when it comes to the stock market. It’s the role of a stockbroker to ensure that clients know the risks involved, and act on their behalf, to build their portfolio.
The best portfolios are the ones that build with a variety of investments. Spreading investments in different markets, with short-term trades and long-term trades, are methods implemented for risk management purposes.