Brokers trade in securities of (stock listed) companies andexecute trading orders for their clients, investors, on a commission basis. In order to do so a license is required.
Brokers are a key intermediary between listed companies and the investment community and play an important role in dissemination of information on listed companies to investors. As such they are a key partner for an investor relations team and function as an extended arm and a sales channel in reaching the market.
Role of brokers
Brokers typically fulfill a role in:
In-depth analysis by analysts of listed companies recorded in written reports that typically include a valuation and recommendation on a stock. Key point of interest for an investor will include the assumptions, risk assessment, valuation method, modelling and value drivers. Brokers will in any case provide research and acces and discussion to analysts to their best clients. Analysts employed with brokers (typically called sell-side analysts) will usually focus on a specific industry or segment (e.g. mid & small cap) and cover a certain number of companies. The analyst will primarily talk to investors that are sector specialists and/or buy-side analysts.
Sales plays a pivotal role in the dissemination of information by brokers. They are responsible for the account management of investors, which includes ensuring that each investor receives the information he or she wants and needs. Where an analyst takes a longer term view on companies and markets, sales also advise clients on more short term strategies. Smaller investors will have no or less access to investors and discuss their strategic view with the sales team. A sales person will be able to discuss a far larger number of (say 100 to 200) companies with an investor. A sales person will always refer key clients with more detailed questions to the analyst. The sales person will primarily talk to portfolio managers. In case of large, global industries, which typically require a number of analysts to cover the sector, some brokers have appointed ‘specialist sales’. These are sales people who have specific knowledge on a certain sector.
Trading refers to the execution of trading orders.
Investors value access to company management. This is provided by brokers through the organisation of roadshows, broker conferences and reverse roadshows. A reserve roadshow is a roadshow in which an investor travels and visits a number of companies.