Brokers are individuals or firms that charge a fee or commission for performing a financial service need.
Discount vs. Full Service Brokers
Discount brokers are able to execute any type of trade on behalf of a client, for which they charge a reduced commission in the range of $5 to $15 per trade. Their low fee structured is based on volume and lower costs. They don’t offer investment advice and brokers are usually paid on salary rather than commission. Most discount brokers offer an online trading platform which attracts a growing number of self-directed investors.
Full-service brokers offer a variety of services, including market research, investment advice, and retirement planning, on top of a full range of investment products. For that, investors can expect to pay higher commissions for their trades. Brokers are compensated by the brokerage firm based on their trading volume as well as for the sale of investment products. An increasing number of brokers offer fee-based investment products such as managed investment accounts.
Brokers Are Held To A Lower Standard
Brokers are registered with the Financial Industry Regulatory Authority (FINRA), the broker-dealers’ self-regulatory body. In serving their clients, brokers are held to a standard of conduct based on the suitability rule, which requires there be reasonable grounds for recommending a specific product or investment. The second part of the rule, commonly referred to as KYC (know your customer), addresses the process of due diligence a broker must use in determining the reasonable grounds of the recommendation. The broker must make a reasonable effort to obtain information on the customers financial status, tax status, investment objectives and other information that can be used in making a recommendation. This standard of conduct differs significantly from the standard applied to financial advisors registered with the Securities and Exchange Commission (SEC) as Registered Investment Advisors (RIAs). Under the Investment Advisers Act of 1940, RIAs are held to a strict fiduciary standard to always act in the best interest of the client, while providing full disclosure of their fees.
Business Loan Brokers: Warning Signs
If you do choose to work with a business loan broker, what kind of behavior should make you concerned? When you come across any of these 5 red flags, think twice about continuing to work with the business loan broker in question.
- No Physical Address Is Listed On The Broker’s Website
Business owners shouldn’t be working with business loan brokers that lack an actual address on their websites (if they even have a website). If they don’t have a physical office, it indicates that they’re running a shady operation.
- No Connecting Telephone Number
Talking about your loan options over the phone with a real person is helpful for any business owner trying to make their final decision on their loan product. Reputable business loan brokers have a way for their clients to speak with them.
- No Privacy
- No Concern About Your Credit History
Have you come across a loan broker’s website that makes these claims: Bad Credit OK or Get A Loan, guaranteed ? If you have, watch out. Business loan brokers that claim they can get you a loan with a poor credit score are lying. While there are loan options available for business owners with bad credit, your credit score is a major factor in determining the kind of loan you can secure.
- No Business Email Address / Social Media Postings
Many so-called business loan brokers advertise their services on social media today and have email address at yahoo, gmail, outlook, and / or aol. Anyone can create an email account at one these providers and claim to be a loan broker. If you don’t see a company business name email address stay well clear.
Questions to Ask a Business Loan Broker
- What Is The Total Cost Of My Loan?
If the broker answers you with an amount, be it actual or a range, do not work with him. Since he is not the lender, he has no idea what the cost of the loan will be.
- How Many Lenders Are You Shopping My Loan To?
Don’t expect an honest answer. Typically business loan brokers shop your application to all of their sources at the same time. This could be as many as 100 or more. While this strategy applies to buying residential real estate and automobiles, shopping for a business loan is the best way to have your application declined.
- Do You Sell or Share My Information with Other Brokers?
You won’t get an honest answer to this question either.
- How Long Until I Receive Funding?
This is not a question for a broker since he is not the one funding your loan. If he answers you with a specific time or even a time range, do not work with him. The time to receive funding on every business funding deal is often dependent the borrower. If a lender requires four documents and the borrower has only three, and has to create the fourth, this delays the time to fund.
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