This is a continuation of How Brokerage Firms Make Their Money Part 1

4.  Free Credit Balances are an easy way brokerage firms earn money off its’ clients.  Brokerage firms that are owned or affiliated with a bank offer F.D.I.C. money market deposit accounts.  These accounts generally pay a low rate of interest and take the client’s money out of customer segregated funds and into bank loanable funds. This strategy benefits the banks and not the customer by allowing the bank to lend out your money at a high rate of interest while at the same time paying the customer a low rate.

5.  Making markets in securities is another way brokerage firms make money.  Brokerage firms are allowed to hold inventories of stocks and bonds for later sale to its’ clients.  Now it’s easy to see where your broker/ advisor has formulated his or her most recent recommendation to you.

broker6.  Selling Insurance Products.  All brokerage firms love to have their brokers/ advisors selling insurance products and the simple reason is the enormous hidden commissions associated with these products. If you are encouraged by your broker/ advisor to invest in any type of annuity or insurance deferred compensation or wealth building strategy make your broker/ advisor disclose in writing the amount of money they will receive from the insurance company or their firm.  Most brokers and brokerage firms are tight-lipped with this information, but if asked they must disclose. If you do not receive full disclosure DO NOT INVEST and immediately contact INVESTOR PROTECTOR.