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Lesson 8. Brokers and Brokerage Houses > Full Service Stockbrokers - Pg. 42

Brokers and Brokerage Houses 42 Luckily, since the abolishment of standardized broker fees in 1975, many different types and price structures for stockbrokers now exist. Everyone has access to any number of competing firms, so you can pick the type of broker or brokerage that is most applicable to your needs. Securities and Exchange Commission The Securities and Exchange Commission (SEC) is the U.S. Government commission charged with the responsibility of ensuring compliance with its securities act. Through the use of its own financial professionals, which includes qualified stockbrokers, the SEC monitors trading and the markets through the computerized networks for strange and/or unusual trading activity, for example. These professionals would then further investigate to uncover illegal activity such as insider trading (trading with prior or nonpublic information). To eliminate conflict of interests, SEC financial professionals do not engage in professional trading activity themselves, but work for and are compensated ex- clusively by the U.S. Government. The Securities and Exchange Commission (SEC) acts as the stock market police. The SEC makes sure everyone is following the stock laws, or securities acts, passed by the U.S. Government. Plain English Full Service Stockbrokers You can find full service stockbrokers at the most well-known and established companies, including · · · · Salomon Smith Barney Morgan Stanley Goldman Sachs Merrill Lynch For all their eminent reputations, however, brokerage firms use a substantially different track for selling stock than the average investor would think. The company that uses the expression about making money the old-fashioned way--earning it--isn't lying. They just didn't specify for whom they were making that old-fashioned money. Bluntly put, stockbrokers have to make a living, too. And that lifestyle isn't cheap. Did I mention that full service brokers also charge the highest commissions? I've heard of full service brokers who charge up to $75 per transaction. Even though the average investor may be aware of these com- missions, what goes largely unsaid is the other ways in which stockbrokers make money or further their business. You should know upfront that in all fairness, full service brokers and brokerages have their uses and place within investment. Many people, for a variety of reasons, do utilize the services of full service brokers and brokerages and do very well by them. For example, someone with enough money in the market to prohibit the time needed to effectively keep track of investment trends (because the person is using all that time to make the money that's being invested) would make a good candidate for a full service broker. Also, someone who was planning to buy and/or sell on a daily basis is an example of someone who might fare well using the services of a broker. Although this type of client, however, would still do well to consider excessive service fees involved in these kinds of services. In addition, most stock- brokers aren't dishonest and do play upfront with their clients. After all, unhappy clients will leave sooner or later, so it's in the stockbroker's best interest to keep them happy.