What are the economic functions financial intermediaries perform?

Essay by rawzbtzacUniversity, Master'sA+, August 2006

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There are 3 types of financial intermediaries: investment bankers, brokers, and dealer. Investment banking firms help businesses and governments sell their securities to the public. They purchase securities from the issuing company and then resell them to the public (called underwriting) or they try to sell securities for a desired price, without guarantees (called best efforts basis). (Gallagher & Andrew, 2003) Broker dealers are financial intermediaries that provide a wide range of financial and investment services to investors including the execution of trades, advice on which securities to buy or sell, as well as on financial planning. (ECCB, 2006) A broker dealer can help one make future investment decisions with greater confidence. A broker is only authorized to buy and sell securities as instructed by their clients. More experienced investors prefer to use the services of the broker, while new investors can benefit from the experience and knowledge of the broker dealers.

A function of the broker dealer is to provide personal service and quality advice to the clients. The broker dealer will need to clearly understand your financial needs and your investment objectives in order to provide appropriate financial advice or recommend the products best suited to your needs. Broker dealers work on a commission basis, in accordance with the level of services provided, the value of the client's assets under management, and the fee structure of each broker dealer. However, regulations have capped commissions at 5% of the value of the total investment that investors would have authorized the broker dealer to trade on their behalf. (ECCB, 2006) A good broker dealer will seek out good returns for your investments.

Since the birth of on-line investing, online trading has exploded over the past years as investors are becoming more self-sufficient and comfortable using their computers for investing. The...