For most people, the idea of a career in finance represents untold wealth, status and power. The reality of working in finance is vastly different, and nowhere is that disparity starker than at the broker level. We've all read the news reports of fabulous bonuses paid out to top finance executives. We've been outraged about them receiving taxpayer-funded bailouts, too. But very little of that bounty trickles down to brokers - the ones who monitor the markets, man the phones and make the trades.
Brokers are, essentially, go-betweens. Someone has something to sell; perhaps someone in the population wants to buy it. Rather than the seller shouting into the crowd what they have on offer, the broker is on the ground, going from cluster to cluster of humanity and asking if they're interested. Should they find an interested party with a coin to spend, the broker brings the buyer to the seller. Often, they mediate in the negotiations.
You might have gathered by this Medieval-times-flavoured description that brokers sell much more than stocks. Indeed, you can find brokers across the whole of commerce, including:
- data brokers
- business brokers
- freight brokers
- customs brokers
- joint venture brokers
- pawn brokers
Yes, even those who make short-term loans against collateral are brokers. They negotiate the terms of the loan: the collateral's market value - often much lower than the item's perceived value; what they're willing to lend against it and the loan's interest rate. It takes more than a bit of skill - some might say cunning, to succeed as a broker. What else does it take? Of all the jobs in finance, brokers are a breed apart. Let's find out more about various types of finance brokers.
Traits and Requirements of Brokers
Brokers' role as a go-between suggests that personal characteristics are more important than formal education to do the job well. That doesn't mean that those interested in a career as a broker shouldn't seek higher education. In fact, having a four-year degree makes it more likely that their application to work at major financial firms and reputable brokerage houses will be given more consideration. However, school leavers with good GCSE marks can also become brokers.
To work as a finance broker, you have to have a good understanding of laws and policies that cover financial activity. For instance, as a mortgage broker, you would get in a lot of trouble for selling mortgages to clients who don't have the resources to justify the loan. As you might know, such practices inflated the US housing bubble which precipitated the 2008 financial meltdown.
From that, we take that brokers must operate with a strong sense of ethics. Charles Ponzi stands as the perennial example of unethical trading. Initially, a broker dealing in arbitrage, he soon realised he could rake in a windfall by simply paying off former investors with new investor money, without spending a penny on any product. He wasn't the first dishonest broker in finance history but his activity was so egregious that, to this day, governments all over the world remain watchful of Ponzi schemes.
Brokers must have a good understanding of money and financial markets. They must know all about financial instruments - stocks, bonds, derivatives and more, so they can make bona fide recommendations to their clients. They function sort of like meteorologists, predicting market activity based on current trends. And they have to keep their ear to the ground to give their clients advance notice of market changes that may affect them. Brokers' scope of work is far broader than, say, the credit analyst's, even though they both work with the public, at least to some extent, and neither position requires higher education.
Work as an Insurance Broker
In general terms, this type of broker finds the best products to minimise their clients' risk of hazard. That doesn't mean costly things won't happen if clients buy insurance, only that they'll have the cash to recover from the event. Typically, insurance brokers offer their clients a variety of protections against loss, anything from car and homeowners' insurance to life insurance. Other types of insurance include renters' insurance for people who don't own a home, flood insurance, health insurance and extended warranties - insurance in case something happens to your expensive consumer item.
In the UK, insurance brokering is a bit different. The practice of insurance brokerage remains but it is limited to general insurance, meaning every type of insurance besides life insurance, which is sold by independent financial advisors. This change came about because, rather than offering clients an array of insurance firms' products to choose from, they acted as agents for a few, select firms.
Since 2013, the Financial Conduct Authority has been tasked with regulating general insurance sales. A broker certified by this Authority is allowed to refer to their activity as insurance brokering. Sellers working in such brokerages may not have to register with the Authority if they work through an insurance firm. According to Reed, the average salary for insurance brokers ranges between £32,500 and £33,700 per year.
Earn a Living as a Real Estate Broker
A real estate broker is not the same as an agent. As with general insurance, a property agent may work under the broker who owns the real estate agency. Independent property brokers don't have to have an agency; they may work out of their homes. However, they do have to be licensed to sell real estate.
To earn real estate credentials, prospective brokers attend a series of courses to learn about the property market, the laws governing the property trade and document management. Much like corporate budget analysis, trading in property is a document-heavy process. People who want to work in this field must pass an exam before they can broker any deals. No higher education is required to broker real estate.
Real estate brokers may be sellers' agents, buyers' agents or dual agents. The first two represent one party to the transaction, either the buyer or the seller. The dual agent's position is a bit riskier as there exists the potential for conflicts of interest. Ethical (and licensing) requirements compel dual agents to operate fairly when they represent both sides of the transaction. By contrast, transaction brokers represent the deal itself; they are not compelled to protect either side's interest during the transaction.
The average salary for a property broker is just under £28,500 per year, according to Check-a-Salary. Much of their income derives from commissions off their sales. Those, in turn, depend on the market. In tight economic times, people tend to put off major purchases. Even when property prices drop, a broker might have a hard time selling anything because housing price drops are a sign of a stressed economy. People aren't likely to part with any money to buy a property in those conditions.
A Career as a Stockbroker
As you might have guessed from the types of brokers covered so far, brokering tends to be a high-stress occupation. Not the least because brokers' income depends more on external factors - the markets, their clients' needs and the availability of products. All of these factors are out of the brokers' control. The same is not true for stockbrokers.
Stocks are constantly traded for a myriad of reasons. Someone might simply want to diversify their portfolio so they'll let go of one stock to buy another. A stock might split, undercutting its value but making twice as many shares available for purchase. The government might find themselves tight on cash towards the end of a fiscal year so they'll put bonds on the market. All of these instances are opportunities for the stockbroker.
The flip side of that coin is, of course, the buyers. Few would turn away from a solid investment opportunity. And more than a few would be happy to take a bet on new stock, even if their investment manager would advise against it. In this sense, stockbrokers seem to have it easier than brokers of other financial products.
But that's not exactly the case. For one, while supply and demand for investment products remain fairly constant, the brokers themselves are being bypassed. Thanks to trading apps and websites, individual brokers struggle to find new clients and even keep the ones they have. Furthermore, in these precarious economic times, everyone is cagey about investing. Before investors might have hedged their riskier bets but the markets themselves are turning into pools of risk, scaring investors away.
That's why many stockbrokers are turning to other fields in finance. Many are rebranding themselves as investment advisors, promoting a range of financial products as well as stocks and bonds. Beware, though, that while working in the bond market doesn't require any higher education degrees, advising people on their finance options does. However, the returns are far greater. A stockbroker might earn as little as £30,000 per year plus commission but the average annual salary for an investment advisor is nearly £48,000.
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