- The Securities and Exchange Commission describes brokers as individuals and entities that execute financial transactions on your behalf. Most people do not have access to the stock exchange trading floor, and must clear investment trades through brokers.
- Brokerages carry a fiduciary duty to secure the best price available for your authorized trades at any given moment. Beyond simply clearing trades, full-service brokers are required to propose investment recommendations in line with client objectives.
- The fiduciary duty requires brokers to disclose potential conflicts of interest to clients. For example, brokers may sometimes operate as dealers, where firms sell their own investment holdings to account holders.
- Securities law reinforces an emphasis on financial education for both brokers. Brokers are required to pass examinations to become and remain licensed.
- Despite stringent securities laws, brokers may violate their fiduciary duty. Churning is a tactic where brokers propose numerous financial trades designed merely to generate expensive commissions, rather than to build wealth.
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