Stockbrokers invest in stocks, shares and other financial instruments on behalf of institutional, corporate and private clients.
Stockbrokers take on a variety of roles and increasingly specialise in the buying and selling of particular instruments. These can include fixed interest investments such as gilts, treasuries and corporate bonds, shares in listed companies and/or more exotic instruments such as derivatives.
Financial instruments can be bought and sold on the world's stock exchanges, directly from an existing shareholder or through Over the Counter (“OTC”) markets. Most large companies will have both debt and equity instruments that can be purchased on a regulated exchange such as the London Stock Exchange or New York Stock Exchange and prices are published in real time through specialist providers such as Bloomberg or in major national newspapers on a daily basis.
A stockbroker may work on an ‘’execution-only’’ basis (which means that the broker will simply look to implement a client's instruction to buy or sell a particular security), an ‘’advisory’’ basis (where they advise on which sectors or stocks a client should consider but leave the final decision up to the client) and/or a ‘’discretionary basis’’ (under which the client's investment objectives are considered and a portfolio of instruments constructed to meet these objectives).
Advisory and discretionary brokers will also engage in substantial economic and company research as well as looking to source third party research. This research can include accounting data, economic analysis, fundamental and technical analysis. The key purpose of all these types of research is to ascertain which companies' instruments are currently undervalued by the market. A fundamental rule of investment research is that a good company is not always a good investment because the market may have already priced in expected gains/ losses.
Discretionary brokers will normally look to formalise risk and return objectives in the form of a Statement of Investment Principles (“SIP”) or through an Investment Management Agreement (“IMA”). The IMA is a formal legal document which details the type of securities a broker may sell and buy and the expectations of the client.
Salaries can vary hugely. Graduate starting salaries range from £20,000 to £35,000 depending on the nature of the institution. Stockbroking revenues are achieved through commissions, most notably ’’agency trades’’ and ‘’principal trades’’ and also spreads on financial instruments. In an agency trade a flat fee is paid to the broker. In a principal trade a fee is paid based upon the assets bought and sold. A spread is the difference between the price that you can buy and sell an instrument at.
Successful stockbrokers are some of the best paid individuals in the world. Once experienced, salaries of £100,000 are feasible. Stockbrokers can also expect bonuses and these can be very high. Top brokers will often become traders for large institutions or hedge funds. The top paid systematic traders can expect base salaries of over £1,000,000 with bonuses of several million; however, these are the exception rather than the rule.
- Best Execution – a stockbroker has a fiduciary duty to their clients to obtain best execution on a particular trade. This means selling a security for the best (highest) price offered in the market and buying for the lowest price
- Client meetings and advisory – a stockbroker will be expected to liaise with clients to ascertain risk and return objectives and select appropriate securities to meet these requirements
- Research – a stockbroker will be expected to engage in (or at least understand third party) research. This may include quantitative research such as model building, statistical analysis and portfolio construction tools, accounting data such as balance sheets, income and cashflow statements and economic trends. They will be expected to act on these views in order to capitalise on opportunities in the market
- Underwriting – besides these duties certain stockbrokers will underwrite new issues. What this means is that a broker will market stocks from an Initial Public Offering (“IPO”) or additional listing to their clients. In the event of there being insufficient demand for a particular issue the broker may have an arrangement to purchase the remaining shares
Stockbrokers will have to pass certain exams before they can practise so that they can become authorised with the Financial Services Authority (“FSA”). Authorisation will include both professional exams and Continual Professional Development (“CPD”). Depending on the type of work you are trying to get into a specific qualification may be necessary. Common qualifications include:
- The Securities and Investment Institute (“SII”) Level 3 Certificate in Investments
- EDEXCEL National Award in Personal and Business Finance
- CFA Society in the UK Investment Management Certificate
- Chartered Financial Analyst (CFA©) Charter in Financial Analysis
A strong undergraduate degree will normally be required including high marks at A level and at least a grade B in GCSE Mathematics.
Knowledge - As mentioned above a professional qualification and minimum professional competence level will be required.
Numeracy - A stockbroker will need to be good with numbers. Strong statistical and mental arithmetic skills will be beneficial.
Commitment - Hours can be very long and the workload very stressful.
People Skills - While traders and market makers may have minimal client contact a true stockbroker will often have to present performance and complex issues to clients. They will also need to understand their client’s individual needs and whether their perceptions of risk are accurate and feasible.
Analytical skills - Stockbrokers will be expected to digest and react to a wide range of data. You will need top notch analytical skills to sift through data, adjust figures to reflect economic reality and produce research. Company management will always look to present earnings in a favourable light so being able to ascertain what a company's economic, rather than accounting prospects, are is imperative.
Attention to detail - Making sure that data is accurate is imperative.
Stockbrokers should expect to work long and anti-social hours in a high paced office environment.
It is possible to source a job straight from university, or in exceptional circumstances be taken into a role post A-level. A background in accounting, finance, economics or other financial subjects may be beneficial but is not required.
In preparing for an interview make sure that you are abreast of current financial issues and are passionate about finance. Firms will have a lot of applicants so make sure you have at least some background knowledge.
Competition for jobs is high and if you can obtain an internship at a major finance house you will be ahead of the game. Most major companies will offer a round of internships on an annual basis but competition for these roles is fierce and you should apply early. Most of the major financial companies will have graduate websites and a streamlined application process. Interviews at the top firms are likely to be intense and may include verbal and numerical reasoning tests, individual interviews, group tasks, e-mail tasks (involving delegating tasks to the right individual on the assumption that your manager is away) and other tests. A strong mathematical background is a must.
Major investment banks will look to take on a round of graduates into varying roles including brokerage and trading on an annual basis. This is one of the most competitive areas to get into with hours exceptionally anti-social within certain departments.
Asset Management firms
Asset managers manage assets on behalf of institutional clients such as pension funds and corporations. They will normally employ traders and brokers to implement their investment research.
Private Client stockbrokers
These include major names such as Brewin Dolphin and Redmayne Bentley and a range of smaller companies. The Association of Private Client Investment Managers and Stockbrokers has a full list of UK stockbrokers and this provides a great place to look for work.
Within the industry, it is possible to move between a variety of the related jobs mentioned above. Stockbrokers will often build successful client banks and will not wish to move on. Some stockbrokers will go into trading and/or investment management where the benefits of working with institutional clients can provide both prestige and higher compensation.
Andrew Singh is 26 years old, and works as a stockbroker.
How long have you been in this particular job / industry?
I’ve been in the industry for about 3 years.
What did you do before this job?
This is my first job post university. I studied aeronautical engineering at Leeds University and decided to look for a job in the City.
What do you do in a typical day at work?
I work in research rather than the implementation and brokerage side. The traditional stockbroker image of pinstriped suit and red braces is almost something of a joke now as most of the areas are highly specialised and a lot of trading is automated.
My role involves constructing cashflow and credit analysis models for the portfolio managers. I spend a lot of time working with accounts and making adjustments based upon different accounting standards which can be pretty tedious. The next element is to look at which stocks look good value i.e. are cheap relative to what the models says they should be. This will involve comparing a particular company with its peers and other sectors. For example, if a company launches a major expansion project you need to assess how successful that project is likely to be and whether the company's earnings projections are realistic.
What do you like about the job?
I have a lot of flexibility in the analysis which I can perform. We have an initial screening process which identifies stocks with attractive fundamental characteristics such as strong Earnings Per Share (EPS) and Dividend Yield. As you can imagine, there are a lot of stocks out there and you need an initial filter because the market moves so quickly. From this base position I then have to think about what a company is likely to achieve. This can involve both simple qualitative analysis such as increasing TV sales for the World Cup and technical company data which keeps the job interesting.
What do you dislike about the job?
There’s a mountain of different accounting systems such as US GAAP and IFRS. All of these systems are different and prescribe different ways of providing financial data. To make sure you’re comparing apples with apples you have to make adjustments which can be very tedious. The hours can also be very long. During the busiest quarterly reporting season I will often be in by 7a.m and won’t finish till 10p.m
I also have to study for professional qualifications and am currently doing the CFA exams. These are probably the most intense things I’ve ever studied and any spare time you have you end up hitting the books.
What advice would you give to someone thinking of doing this job?
Given the recent economic turmoil, stockbrokers and other professionals have come in for a lot of stick. Stock broking is a pretty intensive profession and does take over your life somewhat, particularly if you’re in a trading role. You need to make sure that you are happy working in a fast-paced and sometimes aggressive environment and take the odd tirade when people are stressed out. I’d advise anyone looking at moving into financial markets now to really consider whether this is what they want. The market has been flooded with hugely talented (and qualified) individuals and, while there are a lot of jobs out there, still standing out from the crowd is getting harder. I’d recommend getting a good qualification such as the CFA as a base and looking for an internship.
What job(s) do you think you might do after this role (i.e. career progression)?
My natural evolution is to go into a portfolio/ fund manager role.
What other inside-information can you give to help people considering this career?
Make sure you’re committed to being in finance and have good numerical skills. Be prepared to lose all your friends and receive abuse from your mates in the pub for ruining the world!!