What Is The Difference Between Investment Management and Stockbrokers?

he investment services industry can be daunting and ambiguous for individuals who seek a return on their capital. After working hard earning your wealth, it is important to understand the different services offered by professionals and what solutions fit you personally. One of the main questions we get asked here is:

“What is the difference between investment management and stockbrokers?”

Firstly, let’s discuss what stockbrokers are – we all have a much better, clearer, idea of what they do and who they represent. Stockbrokers are regulated firms that offer financial advice to their clients. A stockbroker buys and sells equities and other securities like bonds, CFDs, Futures and Options on behalf of their clients in return for a fee or commission. A brokerage / stockbroker will receive a fee on each transaction, whether the idea is profitable or not.

A brokerage can specialise in any investment niche they wish for example:

  • FTSE All-Share stocks,
  • AIM stocks,
  • European Stocks,
  • Asian Stocks,
  • US Stocks
  • Combinations of the above
  • Straight equities,
  • Straight derivative trading (CFDs, Futures & Options)

The main reason why investors choose stockbrokers over any other professional investment service is simply down to control. Due to the nature of a brokerage firm, they can only execute a trade after you instruct them to do so. This means it is impossible for a brokerage to keep buying and selling securities without you knowing – known as churning for commission. This doesn’t however prevent stockbrokers providing you with several new ideas a week and switching your positions to a new idea.

However, there are natural flaws with the brokerage industry is that because trading ideas can only be executed after being instructed to list a few flaws;-

  • you may miss out of good opportunities due to moves in the market,
  • you may get in a couple of days later because you were busy and not make any money after fees,
  • you may receive a call to close a position but unable to without your say so.

The above are examples that can happen when investing with brokerage firms, but this is due to the reliance of gaining authorisation from their clients. So if you are ultra busy or travel a lot then you could potentially miss out on opportunities to buy or sell.