What Is a Brokerage Commission House?

A brokerage commission house is a company that buys and sells various financial assets like stocks, bonds, and mutual funds𒊎, in return for fees.

The fee paid by clients of a brokerage commission house will depend on a variety of factors, such as the type of asset🔯 traded, the quantity traded, and the broker. Fees can be charged as a flat rate per trade, for example, $3 a trade, or as a percentage, for example, 1% of the total value of the transaction.

The brokerage house may also re♚ceive commissions from sponsors of financial asꦇsets that they buy on behalf of their clients.

These firms are normally full-service brokerages that provide their clients with investment advice and research as well as trading services.

How Brokerage Commission Houses Work

The clients of brokerage commission houses are pay🌄ing for theಌ services of a financial professional. This may include personalized financial advice, investment research, and regular contact with the client.

Today, discount brokers usually charge $0 fees for individuals executing trades on their electronic platforms. There are no fees for stock trades, exchange-traded funds (ETFs), and mutual funds. For example, if you open an account at E*Trade, deposit $5,000 from your checking account, and buy five shares of Apple stock, you won't be charged any fees.

Some trades in some other types of assets such as bonds, futures, and options may carry a small flat fee. They may offer tiered premium services for clients who want them, but their core services are entirely self-directed by the client.

House Services

Brokerage commission houses are paid for executing orders, arranging settlements, and servicing margin accounts on behalf of their clients. Unlike self-directed brokerages that allow their customers to place trades on their own for nominal fees, full-service provi𝓀ders including brokerage commission houses charge substantial commis♎sions.

They typically use 澳洲幸运5官方开奖结果体彩网:omnibus accounts to do this. These accounts permit trades to be bundled for two or more people. As such, transactions are fulfilled in the broker's name rather than the investors'.

Commissions and other fees, though, are charged directly to the investors. Trade confirmations and 澳洲幸运5官方开奖结果体彩网:account statements are sent to each investor whose trades take ﷽place through an omnibus account.

Special Considerations

The various fees charged by brokerage commission houses can eat into an investor's principal.

For example, two mutual funds with nearly identical holdings may charge two different 澳洲幸运5官方开奖结果体彩网:expense ratios—one witಌh 0.6% offered by a trad🌱itional brokerage firm and the other with 1.6% through a commission house. The 1% goes back to the commission house.

This means a $10,000 investment in the lower-fee fund grows🍃 10% over 20 years for a total of $60,300. The same investment in the fund bought through the commi💎ssion house will grow to $50,200 given the same time period and interest rate.

The impact is even greater when it comes to load-mutual funds and annuities—two products that come with high fees in any case. Adding a commission of up to 10% on the principal means investors in these products 🌞pay a hefty chunk of their earnings in commissions and fees.

Annuities

Annuities are financial contracts that are designed to provide individuals with a regular stream of i꧟ncome during retirement.

The annual cost for a variable annuity can range between 1% and 3%. Some annuities come with a back-end 澳洲幸运5官方开奖结果体彩网:surrender charge for early withdrawals. That means if you cash out the annuity, you pay an exit fee, usually for seven years after the annuity is purchased.

Load Mutual Funds

Load mutual funds come with commissions or sales charges that are paid to the intermediary, such as the commission house.

These funds come in three variations:

• An A-load fund includes a transaction fee paid upfront at the time of its purchase. For example, if you invest $10,000 in one with a 5% front-end load, $500 goes to pay the commission, leaving $9,500 to be invested.
• A B-load fund penalizes you if you sell it within a certain period. A 6% back-end load may be required if you sell the fund in the first year. The fee decreases each year until it reaches zero.
• A C-load fund has no back-load or front-load but it does include a sales charge. This is reflected in the expense ratio, which is much higher than that of a no-load fund.

Examples of Brokerage Commission House Trades

Here's a hypothetical example of how brokerage commission houses work. Let's assume an investor wants to buy a U.S. 澳洲幸运5官方开奖结果体彩网:growth stock mutual fund. The amount inv🐓olved is modest, say $10,000.

The investor could buy an A♔-, B-, or C-fund, and decides on the B-fund, having no intention of selling it for some years. After about six years, the B-fund converts to an A-fund.

If the same investor had $250,000 to invest, the A-fund would bꦗe a better choice because it has lower load fees.

The Bottom Line

Brokerage commission houses charge their client⛎sꦫ commissions for performing financial services, such as buying stocks and bonds and providing investment advice. The widespread use of electronic trading has made the cost of buying some assets, such as stocks, democratic for all, with most brokers now charging $0 for basic trading.

Brokerage commission houses need to be full-service brokers that go above and beyon💃d simple trade execution to justify the commissions they charge.