If you are interested in finance and think that managing other people’s money may be your bag, then you may be cut out to become a stockbroker. And while this challenging field requires a broad skill set coupled with a willingness to work long hours in order to succeed, the rewards can be enormous for those who make the grade. Of course, it typically takes most fledgling brokers at least a few years to accumulate a large enough base of customers to allow them to live comfortably. However, those who embark on a career in this field today have more options than were available in the past.
Regardless of the specific career path they choose, all stockbrokers are required to obtain the same standard securities licenses. To become a registered representative, one must pass the Series 7 and Series 63 exams administered by FINRA; these authorize representatives to buy and sell stocks, bonds, mutual funds and other types of securities. Many stockbrokers are then required (or choose) to obtain other licenses as well, such as: the Series 3 or Series 31 licenses for commodities and managed futures, a Series 65 or Series 66 to become a Registered Investment Adviser, or a life and/or health insurance license to sell life, disability and long-term care products and fixed and variable annuity contracts.
While there are no formal educational requirements for becoming a broker, (as there are to become a CPA or financial analyst), many firms are now looking for brokers who have at least a bachelor’s degree, preferably focused on some aspect of business or finance. It is also becoming increasingly important to be able to pass a strict background check that will examine both the prospective broker’s criminal and financial history. Those with recent bankruptcies, tax liens or repossessions will likely be discarded from the list of potential candidates just as quickly as those who have been in any type of legal trouble more serious than traffic citations.
Working at a full-service firm such as Merrill Lynch (NYSE:MER-F, MER-D) or Morgan Stanley (NYSE:MS) is still the most traditional approach to selling investments. Brokers who work for these firms will be provided with a comprehensive training package that includes sales and product training as well as education in administrative procedures and compliance regulations. They will also typically be provided with an office space (or at least a desk), business cards, a guaranteed salary or draw against commission and a very high sales quota that they must meet within a relatively short period of time, if they want to stay on there.
Some firms have changed their models and allow their reps longer periods of time with better starting salaries so that they have a better chance of succeeding. But a relatively large percentage of each class of trainees will wash out of these programs because they were not able to generate enough business to meet their quotas.
Many very successful brokers eventually leave firms such as Merrill Lynch and move on to independent broker-dealers such as Raymond James (NYSE:RJF, RJD) or Linsco Private Ledger. These firms typically offer a wider array of products and services and do not require their reps to sell proprietary products of any kind. They also usually offer much higher payouts on commission than full-service firms such as Merrill Lynch. However, they are usually only capable of giving back office administrative support and do not provide amenities such as office space. Those who work for these firms must pay for all of their own expenses and overhead.
If you are not a super salesman by nature but would still like to try your hand at managing investments, a discount broker firm such as Charles Schwab (NYSE:SCHW) or Fidelity (NYSE:FNF) might work for you. These firms are geared toward providing effective service for walk-in clients and usually pay their brokers a flat salary (albeit with some minor bonuses or other incentives).
Many brokers who don’t make it at full-service firms end up at discount firms where they have a chance to really learn the business and get a feel for the markets. Some brokers can eventually build up enough of an informal clientele that they can eventually move back to a full-service or independent broker-dealer and make a living there.
Discount brokers are likely to gain a much broader base of experience than many full-service brokers, who generally specialize in certain areas such as IRA rollovers or employee stock options. A rep who works at a firm such as Schwab or Fidelity is expected to be able to provide a broad array of research and services, including basic technical and fundamental analysis, rollovers, stock options, margin accounting, derivatives, bond ladders, open, closed-end and exchange-traded mutual funds, partnerships, charitable gifting, 1035 exchanges and many other areas of investment, retirement and estate planning.
Reps will also often be required to perform administrative duties such as cashiering, new account setup, processing stock certificates and other paperwork. But they are not subject to the kind of sales pressure as their full-service counterparts and generally have either very low or no production quotas of any kind.
Being a broker at a bank is a very different proposition than working at Merrill Lynch or Fidelity. Like most discount firms, many banks also look for licensed brokers with previous experience, but the banking system is so unlike the brokerage world that it usually takes new investment consultants a while to get their bearings. Brokers who work at banks are full-service brokers in a technical sense, but they are often given a lower payout on their commissions in return for having access to the bank’s customer base. Bank brokerage positions were once viewed as dead-end jobs that were only for brokers who failed elsewhere, but this perception has largely disappeared with the growth of this segment of the brokerage industry.
Most banks and credit unions now employ in-house investment consultants who can offer non-FDIC insured products and services. A growing number of banks also expect their reps to cultivate a clientele from outside the bank, however, and most successful reps who work in this system have worked to develop a system that rewards bank employees for referring customers to them as well as some sort of prospecting platform to bring in new business from outside the bank.
Experienced brokers understand that they need to be visible and present to the bank staff and work to educate them on what they do, but also be able to stay out of their way when they get busy with their banking duties. Many of them will invite wholesalers and other product vendors to bring lunch for the staff and then explain how their products can benefit bank customers.
Bank brokers can also expect to work with a more conservative clientele than they will encounter elsewhere, and many of them rely heavily upon fixed annuities and other low-risk products to build their businesses. But bank brokers usually escape the sky-high sales quotas and pressure to sell proprietary products that those who work at other full-service firms face. The banking environment is usually a much more relaxed atmosphere, but brokers often have to make an extra effort to get their clients to understand that what they offer is not FDIC insured.
The Bottom Line
There is more opportunity than ever in the financial industry today for those who are willing to work. The modern stockbroker has several major arenas in which to build a business, but those without prior training or licensure might be wise to start at a full-service firm that will provide this at no cost. This is advisable, even if the reps feel that they are not a good fit for this model, because they will be much more marketable once they leave. For more information on becoming a stockbroker, visit the Financial Industry Regulatory Authority website at www.finra.org.
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