In the past, one of the most coveted and iconic investment careers was that of a stock broker. Even people with minimal or no investment experience understood the role of a stockbroker. Stockbrokers buy and sell stocks for investors, earning money as commission for facilitating these transactions. But, are stockbrokers still relevant, or are they just a dying breed?
Stock brokers are no longer a thing and are slowly becoming a dying breed. Investors are now capable of doing what stockbrokers have been doing thanks to the internet, automation, and passive investments.
The rest of this article will discuss why stockbrokers are a dying breed and the factors that are contributing to their decline. We will also discuss whether stockbrokers are still needed, and what the future without stockbrokers will potentially look like.
IMPORTANT SIDENOTE: I surveyed 1500+ traders to understand how social trading impacted their trading outcomes. The results shocked my belief system! Read my latest article: ‘Exploring Social Trading: Community, Profit, and Collaboration’ for my in-depth findings through the data collected from this survey!
Table of Contents
Why Stock Brokers Are a Dying Breed?
Stockbrokers no longer exist. What we have are investment advisors, wealth advisors, or financial advisors. The rapid demise of stockbrokers has happened over the last 25 years. Suddenly, the skills of stock picking, cold calling, and revenue generation have become obsolete. The conventional stockbroker who knew all about stocks and gold mines is no longer critical.
Stockbrokers are becoming a dying breed as a career choice and a job title. This is mainly due to the increasing competition and the rise of discount brokerage firms, among other factors.
Discount Brokerage Firms
The rise of discount brokerage firms has significantly contributed to the decline of stockbrokers. Since 2005, brokerage firms have continued to erode the profit margins of stockbrokers. Only the wealthy clients seek face-to-face attention, and this has spelled doom for brokers. Fifteen years later, this trend shows no signs of changing.
Brokerage firms eliminate the need for hiring stockbrokers since they enable knowledgeable and experienced investors to execute trades independently through web technology. Just like their name suggests, discount brokerage firms provide the same services as stockbrokers, only at a lower cost. The brokerage firms charge minimum commissions, and this helps them attract a large volume of investors.
If a client wants to trade, they would instead use a discount brokerage firm at a fraction of their cost if they use a stockbroker. As the investment industry continues to evolve, clients seek a more holistic investment approach. Many stockbrokers have realized this and positioned themselves as advisors who are well versed with financial, estate, and insurance planning.
Passive Investment
Passive investing is another leading contributor to the fading role of stockbrokers. The idea of passive investing dates back to 1980 when Burton G. Malkiel, an investment author, wrote a book titled A Random Walk Down Wall Street. This book did not attack the stockbrokers directly but attacked the whole idea of actively managed investment.
Malkiel uses an array of impressive data and studies showing that most stockbrokers lack the necessary skills and timing to pick winning stocks in the long-term. Malkiel even made a controversial statement that a monkey throwing wet towels at a stock chart on a wall could outperform experts armed with stock picking formulas and statistics.
Passive investment offers a wide range of benefits, making it the preferred investment option for many people. Passive investment diversifies into index funds and helps reduce expenses. The limited buying and selling that comes with passive investment help to lower taxes related to investment.
Here is a video explaining the difference between active and passive investing:
The Emergence of Financial Advisors
Due to the shrinking profits, many stockbrokers have widened their services’ scope, labeling themselves financial advisors. The brokers aim to differentiate themselves from the discount brokerage firms, and this strategy has largely worked. The current day-to-day job description of brokers has entirely changed.
Gone are the days when stockbrokers would cold-call investors and pitch certain stock and investment ideas. Currently, the brokers are helping their clients to create and execute comprehensive and long-term financial plans. They offer clients financial advice on many subjects like estate planning, mortgages, tax preparation, and life insurance.
Many stockbrokers have realized that the competition from discount brokerage firms affects their sales, which affects their wages. Since most stockbrokers have vast knowledge and experience in investment, they are becoming investment analysts. The brokers do not require retraining to switch roles since they have experience and understand the financial industry’s jargon.
Financial Meltdowns on Wall Street
Due to the recent financial meltdowns, Wall Street has been a victim of significant downsizing. In 2009, CNBC pointed out that Wall Street layoffs left many brokers in the financial industry feeling desperate. With the fading of the stock brokerage jobs, it is unlikely that many Wall Street jobs will ever come back.
Even if some of the Wall Street jobs belonged to investment bankers and fund managers, stockbrokers were also included. The Downsizing of Wall Street was the worst situation for financial employees since 1985.
Are Stockbrokers Still Needed?
Technically, stockbrokers have been financial advisors their whole career, mainly focusing on providing people with information regarding investment decisions. Stockbrokers are already knowledgeable and experienced in this field. These are why the brokers are making a switch to financial analysts and advisors, leaving fewer stockbrokers.
It is clear to see that stockbrokers are a dying breed, mainly with the overwhelming amounts of data and opinions showing that investors do not need stockbrokers. People are no longer willing to pursue a stock brokerage career, meaning that there are no new entrants into stock brokerage. Many people are unsure about a job in stock brokerage and its future.
A stockbroker’s whole outlook is currently quite concerning, especially if you combine this with the declining need for stockbrokers in the future. All the data against stockbrokers make potential and prospective job searchers unsure about it. Just by looking at the outlook of stock brokerage, many people do not seek stockbrokers’ future.
The Future Without Stock Brokers
There is no doubt that stockbrokers are going extinct. Wall Street has not trained a stockbroker for many years. Financial consultants (or any other title they choose to give themselves) have replaced the stockbrokers. These consultants mainly gather clients’ assets, outsource them to investment management firms and third parties, and collect fees.
Frustrated investors are always complaining regarding the inadequate security alternatives with the absence of stockbrokers. Most investors have to choose between low index funds or use cost dynamic supervisors like hedge funds, single account management, or mutual funds. However, investors realize that in most cases, active management does not work as marketed.
How about individuals creating their investment portfolios without the help of a stockbroker? Why can’t investors just buy bonds and stocks in a brokerage firm? Despite the discounted brokerage being cost-effective, most investors have not embraced the idea and do not consider a brokerage account a choice.
The truth is that in a world short of security brokers, many people are hesitant to take the dive and capitalize on shares and bonds. Many investors even are puzzled about investing with day trading. Most investors do not handle their security selections like game indications.
Since stockbrokers are not coming back, stakeholders need to take control of their security collections. They must familiarize themselves with how to capitalize on a portfolio of bonds or individual stocks. With so many tools to guide them, they do not have to rely on an excellent antiquated stockbroker.
Author’s Recommendations: Top Trading and Investment Resources To Consider
Before concluding this article, I wanted to share few trading and investment resources that I have vetted, with the help of 50+ consistently profitable traders, for you. I am confident that you will greatly benefit in your trading journey by considering one or more of these resources.
- Roadmap to Becoming a Consistently Profitable Trader: I surveyed 5000+ traders (and interviewed 50+ profitable traders) to create the best possible step by step trading guide for you. Read my article: ‘7 Proven Steps To Profitable Trading’ to learn about my findings from surveying 5000+ traders, and to learn how these learnings can be leveraged to your advantage.
- Best Broker For Trading Success: I reviewed 15+ brokers and discussed my findings with 50+ consistently profitable traders. Post all that assessment, the best all round broker that our collective minds picked was M1 Finance. If you are looking to open a brokerage account, choose M1 Finance. You just cannot go wrong with it! Click Here To Sign Up for M1 Finance Today!
- Best Trading Courses You Can Take For Free (or at extremely low cost): I reviewed 30+ trading courses to recommend you the best resource, and found Trading Strategies in Emerging Markets Specialization on Coursera to beat every other course on the market. Plus, if you complete this course within 7 days, it will cost you nothing and will be absolutely free! Click Here To Sign Up Today! (If you don’t find this course valuable, you can cancel anytime within the 7 days trial period and pay nothing.)
- Best Passive Investment Platform For Exponential (Potentially) Returns: By enabling passive investments into a Bitcoin ETF, Acorns gives you the best opportunity to make exponential returns on your passive investments. Plus, Acorns is currently offering a $15 bonus for simply singing up to their platform – so that is one opportunity you don’t want to miss! (assuming you are interested in this platform). Click Here To Get $15 Bonus By Signing Up For Acorns Today! (It will take you less than 5 mins to sign up, and it is totally worth it.)
Conclusion
In a real sense, the future of stock brokerage is already here. Gone are the days when an individual or an entire firm depended on stockbrokers for investment recommendations. Advisory firms and full-service financial advisors have replaced the stockbrokers. These firms and advisors are helping individuals and firms build a comprehensive investment plan that yields significant returns.
BEFORE YOU GO: Don’t forget to check out my latest article – ‘Exploring Social Trading: Community, Profit, and Collaboration’. I surveyed 1500+ traders to identify the impact social trading can have on your trading performance, and shared all my findings in this article. No matter where you are in your trading journey today, I am confident that you will find this article helpful!
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