What is a broker? What do they do?
A broker is a person who buys and sells things on behalf of other people. A broker may also arrange transactions between a purchaser and vendor. After the parties have completed the deal, one of them pays the broker a commission
When brokers also act as purchasers or sellers, they become the principal party to the deal.
A broker may be a firm. The firm acts as an agent for a customer, who pays it a commission for its services.
Brokers exist in many industries
Brokers are common in many industries. In most cases, they typically represent the seller. For example, licensed real estate brokers may advertise properties for sale and show them to prospective purchasers. They also determine the properties’ market value and advise their clients regarding offers and other related matters.
Although most brokers work on behalf of sellers, some of them represent the buyer. However, they can never represent both the buyer and seller at the same time. If they did, there would be a conflict of interest.
Brokers are common in the financial world. For example, in finance, they work on behalf of clients trading bonds, stocks, and other financial products.
The Financial Times FT Lexicon says the following regarding the meaning of broker:
“Generally, an intermediary who helps to effect (who brokers) a transaction between two parties. They normally specialize in a particular business, such as insurance and real estate.”
“In securities trade, the broker acts an agent for a buyer or seller, charging a commission (a brokerage fee) usually based on a percentage of the value of the transaction.”
Brokers not just for rich clients
In the past, only wealthy people used a broker for stock market trading. However, the Internet has changed all that. Today there are thousands of online discount brokers. Online brokers allow investors to trade at considerably lower costs compared to their pre-Internet counterparts.
Online brokers, unlike face-to-face ones, do not provide personalized advice. Even brokers that people telephone offer advice more specific to the needs of the client than those online.
In fact, virtually every citizen in the advanced economies can afford to invest in the stock market today. This is thanks to the Internet.
Why use a broker?
The main advantage in using brokers is that they know their market well. In other words, they are experts. Brokers also have relationships with prospective accounts. They know who to talk to, what to do, and above all, how to do it well.
A broker also has the resources and tools to reach the widest possible base of buyers. They screen these potential purchasers for revenue that would support the potential acquisition.
Before deciding whether to hire a broker, you should do some research. You should check what the requirements are in your country or market for somebody to use the title. In real estate, for example, there are strict requirements in most regions of the world for using the term ‘broker.’
In other industries, however, such as selling aircraft, people use the title much more loosely.
A commercial finance broker
According to the NACFB, a commercial finance broker is somebody who channels funds from lenders to commercial businesses. Put simply; they find lenders for companies. NACFB stands for the National Association of Commercial Finance Brokers.
A competent commercial finance broker will know the details of several alternative lenders. Their knowledge is not limited to just the well-known ones. Furthermore, they know what types of enterprises each lender focuses on.
This type of broker works on behalf of companies that are looking to borrow money. They want to borrow money from specialized lenders. Through their knowledge and expertize, the broker will match a borrower’s requirements with the most suitable lender operating in the market.
On its website, the NACFB writes:
“Small and medium-sized businesses who struggle to find funding from high street banks can tap into the expertize of the Commercial Finance Broker.”
Some types of brokers
Business brokers help buyers and sellers of private companies in the trading process. We also call them intermediaries or business transfer brokers.
They help buyers and sellers of private companies in the buying and selling process.
Cargo brokers, shipping agents, or port agents are responsible for handling shipments and cargo. They work on behalf of their clients at ports and harbors.
Not only do these professionals work domestically but they also work internationally.
Commodity brokers execute orders to buy-sell commodity contracts on behalf of clients. In other words, if you tell the broker to buy, they will buy on your behalf. They do what you tell them to do.
Information brokers or data brokers gather information. For example, they may have extensive information about individual people. They then sell this data to companies. Companies subsequently use the information to target advertising and marketing towards specific groups.
Insurance brokers or insurance agents sell, solicit, or negotiate insurance for compensation.
Intellectual property brokers
Intellectual property brokers mediate between buyers and sellers of intellectual property. They may also manage the many steps in the intellectual property process.
For example, they may managethe purchase, license, sale, or marketing of intellectual property assets such as trademarks, patents, or inventions.
Intellectual property refers to patents, inventions, trademarks, slogans, etc. Put simply; they are things that the human mind creates. Examples include designs, symbols, images, names, and literary and artistic works.
Investment brokers bring together purchasers and sellers of investments. In most countries, they need to have a license to act on behalf of buyers-sellers of stock.
Mortgage brokers act as intermediaries. They broker mortgage loans on behalf of people or businesses.
Pawnbrokers offer loans to people who offer items of personal property as collateral. They typically accept jewelry, computers, video game systems, and other possessions as collateral.
In fact, most of them will also buy something from you if you do not want to borrow money.
Ship brokers are specialist intermediaries or negotiators between shipowners and charterers who use ships to transport cargo. They also facilitate business between buyers and sellers of vessels.
Stockbrokers are regulated professionals, usually working with a broker-dealer or brokerage firm. These dealers and firms buy and sell stocks and other financial securities.
They represent both retail and institutional clients either through a stock exchange or over the counter.
In the USA, to be a stockbroker you must have a license. To get a license, you need to pass several demanding exams. You may have to pass Series 7 and either the Series 66 or Series 63 exams.
Yacht brokers represent sellers or buyers of yachts or boats.
Video – Day in the life of a broker
This ICAP Media Centre video looks at a day in the life of three brokers. One of them lives in New York, another in London, and the other in Australia.