How much commission do stock brokers make? Nobody really seems to know the answer to this question. There’s no doubt that many investors probably wonder this all the time. Tom and Brendan discuss the question, “How much commission do stock brokers make?”, in this week’s podcast. Tom starts by explaining some very basic points that investors need to understand. Stockbrokers are employees of a brokerage firm. They are paid by their firm to increase revenue and sales. Many investors don’t know that when they pay a commission or wrap fee, the broker and the firm split that. We aren’t talking about a regular 50-50 split either.
So how much commission do stock brokers make? Tom explains to Brendan that high producing brokers can receive a 60-40 split on commissions. These are the brokers who create the most revenue for their firm. The majority of stockbrokers get about 35% of the commissions they charge you. Lower producing brokers can make as little as 25-30% of commissions. Most investors are unaware o
f this system. Brokerage firms classify their brokers into categories, and pay them accordingly.
In the same vein, clients of brokerage firms are also classified into categories. Tom tells Brendan that one well known firm gives their brokers 0% of commissions on some trades. At this firm (and probably many others) brokers make 0% commission on accounts with less than $250,000 total. Where is the incentive for the broker to manage the account or keep in touch with the client? There’s a really good chance the broker’s time and energy will be spent on an account that gets him paid. Big brokerage firms tend to stress to their employees working with bigger clients is more important. Here at Mullooly Asset Management we think that’s pretty unfair. Every client deserves the special attention they need to help their account grow.
Tom and Brendan discuss how brokerage firms have started sending clients with less than $100,000 to call centers. Clients still have to pay fees, but do not receive a personal broker or advisor to manage their account. Instead when they want to make a trade, they call an 800 number. Some investment advisory firms also require clients to have a certain amount of money to work with them. Mullooly Asset Management does not have any minimum requirements for our clients to meet. Our goal is to help you make money, regardless of how much is in your account.
So again, how much commission do stock brokers make? After reading this and listening to this week’s podcast you know that’s fairly complicated. Stockbrokers can make a varying amount of commissions based on how productive they are and what type of clients they work with. We recommend that you work with a fee-only investment advisor like Mullooly Asset Management, but that’s your decision to make.