A firm that conducts
transactions on behalf of a client. Some brokerage firms only conduct transactions, while others also offer different types of
investment advisory services. Brokerage firms derive their
profit from
commissions on orders given. That is, they usually collect a percentage of the
value of each transaction, though some charge flat
fees. Clients may give
orders in a variety of ways. One may meet with a broker, call on the telephone, or give
orders over the Internet. Brokerage firms handle two main types of
brokerage accounts:
advisory accounts and
discretionary accounts. Brokers are only allowed to conduct
transactions on advisory accounts on the specific orders of the account holder, or under very specific instructions. Brokerages have much more leeway over discretionary accounts, conducting transactions not prohibited by the account holder in accordance with the holder's investment goals and the
prudent man rule. In practice, most brokerage firms are in fact
broker-dealer firms. Most brokerage firms must register with the
SEC.