A real estate broker who takes a percentage of the price your home sells for is a commission broker, but the term more often refers to those who work on commission at a brokerage firm. This can sometimes spell trouble, as the broker is paid based on the number of trades he or she executes.
So what are they incentivized to do? Make a lot of trades. In a practice called churning, an unscrupulous broker might make numerous trades in a customer’s account, even though the only benefit is for the broker. Since some securities offer a higher commission than others, the broker might be tempted to persuade the customer to buy those. A flat-fee broker, on the other hand, would hopefully put the customer’s best interests first and buy securities that are going to perform the best.
The brokerage firm that the commission broker works for also seems to incentivize churning and similar behaviors. The broker’s commission is split with the firm they work for, and the more trades they make, the higher their share of the commission will be. So if Hotshot Helen makes $600,000 in commissions, her spilt might be 60%/40%, meaning she gets to keep $360,000 and her firm gets $240,000. But Beginner Ben only generated $200,000 in commissions last month, so his split might be 30%/70%, giving Ben only $60,000 to keep.
If you are working with a commission broker, it’s always a good idea to keep a close eye on your monthly statements to look for a lot of trades within one industry, for example. If you don’t want to worry about it, you can always switch to a fee-based broker.
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Finance: What is a Broker-Dealer?16 Views
Finance a la shmoop.. what is a broker-dealer? It's one of [Homeless guys holding help signs]
these guys who's making less than minimum wage right no that'd be a broke
dealer and you won't find too many of them in Lake Tahoe but yeah a broker is [Man talking about broker-dealers in Lake Tahoe]
just someone who takes a commission for selling stuff they live wherever there
are transactions in cars, boats, planes, homes and securities like stocks and
bonds so yeah it's a broker - dealer sort of like a writer-director
sexual deviant in Hollywood... Key takeaway here the broker dealer brokers
securities ie they take a commission and they deal in securities like they carry [People playing blackjack]
their own inventory of ten million shares of Amazon this week's selling
them for twelve hundred ninety dollars and 32 cents a share and buying them for
twelve hundred eighty eight dollars seventy nine cents a share making a
spread of...
equals a dollar fifty-three a share the dealer makes a spread of a buck fifty [Dealer and market transferring cash and stock]
three every time she trades a share of the Walmart killing behemoth yeah it's
sort of a Goliath slaying Goliath story there that Amazon Walmart thing we're
watching it so think about broker-dealer making money on both sides of the trades
that's the way to go if you're going to Wall Street make money no matter what [Man walking on Wall Street]
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