What to Expect When Using a Broker

For those interested in investing, it’s often best to partner with a broker. This type of professional possesses expertise investment knowledge. The more money you make off of your investments, the more money the broker earns. Keep reading to learn what you can expect when using a broker.

Completing Paperwork

When you open an account with a broker, you’ll start by filling out a lot of paperwork. Much of the time, this paperwork comes in the form of a new account application. On the paperwork, you’ll answer questions relating to your employment, finances, objectives, and more. Your broker will use this information to create an investment strategy. It’s important to be as detailed as possible on the application. This ensures both you and your broker are on the same page regarding your investment goals.

Various pieces of personal information that you’ll need to provide on the paperwork include:

  • Social Security or tax ID number
  • Driver’s license or passport information
  • Employment status
  • Financial information; annual income, net worth, etc.
  • Trusted contact person

Picking Between a Cash Account and Margin Loan Account

Most brokerage firms offer two types of primary accounts — margin loan account or a cash account. If you opt for a cash account, you’ll have to pay for your securities when you purchase them, and they must be paid in full. If you choose a margin loan account, you’ll still have to pay for the securities in full, but you can pay for them over time. The broker lends you money to buy the securities, with those securities acting as collateral for the loan. As with any other type of loan, you will have to pay interest on the amount that you borrow.

Choosing How to Manage Uninvested Cash

When you start using a broker, you’ll also have to decide how you want your uninvested cash to be handled. It is not uncommon for their to be cash in a brokerage account that is not being invested. It’s very important that you deem a way for this cash to be handled because it gives you the chance to receive cash dividends or interest. Much of the time, a brokerage firm will offer cash management programs, according to Finra. These programs come in different tiers, with each tier having a varying level of risk. It is very important to understand the specifics of each program before choosing one. Your financial objectives and ability to handle risk will determine which program is best for you.

Choosing Who Makes Financial Decisions

You will always have the final say on what happens with your investments. However, you can give another person authority to make decisions, but you will have to do so in writing by giving the person “discretionary authority.” This means the person will have the ability to invest your money without consulting you. This type of authority is commonly given to a person’s financial professional.

Choosing Who Holds Your Securities

It’s also when working with a broker that you’ll have to decide who is going to hold your securities. Whether they are in your name or the brokerage firm’s name will impact how quickly you receive your dividends and interest. It will also impact how easily you can sell your securities.