How Much Does Your Broker Get Paid?

Many people wonder about their stockbrokers pay. Disclosure often isn't required by regulators or the industry. You may or may not know that your broker does not get to keep all the commissions he generates. The gross commissions are called production, and the broker is paid a share of his gross production that varies from firm to firm and by product type. Also the larger the broker's gross production the larger his share of the take. "On Wall Street" an industry magazine has just published it's annual review of broker payout. If you would like to learn a little more about how your broker is paid you can view the information here.

Aside from the different share of commissions you should know that different products pay different rates too. For example if you purchase a closed end or exchange traded bond fund that already trades on an exchange you will pay the firms standard or discounted commission rate. If you are offered a closed end bond fund or ETF that is just being issued you will probably be told that you pay no commission. That is true enough, but the selling firm will receive a "selling concession" that will almost certainly be a lot higher than normal commission rates, meaning the broker earns more. Annuities and mutual funds usually pay much higher commissions than the cost of purchasing an individual stock. Trying to figure out just how much you are being charged for many investments and how much financial incentive your broker has to recommend those investments can be confusing.

This is one of the biggest reasons I believe a fee only financial advisory practice is better for many consumers. All fees are fully disclosed, there are no hidden expenses, and there is no incentive to promote one type of investment or investment product over another.

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