Stockbroker

Stockbrokers broker stocks to customers and, generally speaking, take a commission for the privilege of selling shares of whatever.com to their customers or clients.

Think about stockbrokers like you’d think about home realtors, only stockbrokers are selling 47 homes a day for 5 grand each, give or take…a lot. In the 1970s, commissions paid on stock and bond trades were massive. There were essentially no connected consumer computers, so processing an order was relatively expensive. It took a lot of infrastructure.

And there were relatively few players in the industry...like, only 3-4 big competitors who all decided to charge about the same very high rates. The small number of competitors made for a much less competitive market, which meant that the consumer paid more per transaction. And “more” meant commissions of 3-5%. Buying 100 shares of a $20 a share stock for two grand carried a commission of $100 or so. A broker making 50 of these trades a day did...well.

But oh how times have changed. Today, a typical trade might carry a commission of 0.1%. That same two grand trade today would pay a commission of something closer to two bucks. Yep, you heard that right...98 dollars less. So the bottom line is that there are way fewer stockbrokers in existence today, and the ones who have survived have to sell a whole lot more shares, or do more volume business for their customers.

So what’s the daily routine? Most brokers specialize in a given area of client. Institutional brokers pretentiously called “sales traders” sell stocks to large mutual funds, hedge funds, and other major volume players, who will place orders in blocks of 1 million units at a time, and can trade billions of dollars in stocks through one hot broker. The demands on that broker’s day are severe and high-pressured. The institutional sales trader is expected to be up and in the office by 4 am New York time, gleaning the reports from Europe and Asia, leaving myriad voicemails for her customers, so that Nervous Nelly buy side investors will be encouraged to place their trades early and often with that stockbroker.

At the other end of the spectrum are brokers for retail customers, who sell just a few hundred or thousands shares at a time to a small group of people who lovingly rely on the broker for actual advice, and are dramatically less sensitive to commission prices, should they be a few cents a share higher or lower. That broker is a trusted party who is relied upon to give advice, so that Ethel and Ernie Brillstein can retire in the Lakeside home of their dreams.

So what’s the money like? Well, on the institutional side, it’s extremely volatile. In a good year, a good sales trader managing a desk of a dozen other sales traders can and does make millions. And this is great, because the average tenure of that sales broker is short. They die either in a bear market, or in the form of a coronary, delivered courtesy of the highly pressure-packed, difficult nature of fighting a war, banging a tambourine, and citing Pangloss from Candide that everything is just fine, Mr. Awesomesauce.

The life of the retail broker is kinder, gentler, and poorer. A good retail broker lasts a very long time, and ends up being on the “get rich slow” plan, such that, year after year, they are able to invest some meaningful amount of money in the stock market, watching their wealth grow at turtle pace, but with a thick hard shell covering their behinds.

The qualifications? Being good with people more than anything else. The deep financial knowledge that used to be necessary for the job has all but evaporated. And the job of the sales trader/retail broker is that of regurgitating dialogue written by sell side analysts, and then synthesized by dozens of lawyers before being allowed out of the bullpen.

Progress, or ladder climbing, happens by winning new clients, obtaining new business, and increasing the dollar volumes traded through the front desk.

So yeah, stockbrokers...broker stocks. Okay, guess that’s the tl;dr version.