Broker-dealers act as the friendly middlemen of Wall Street, connecting people who want to buy or sell stocks, bonds, and other investments. Behind every quick tap on a trading app lies a firm that must pay its staff, keep the lights on, and still turn a profit.
They do this through a handful of straightforward money-making methods. Understanding these methods helps investors spot the true cost of every trade and decide which firm offers the best overall value.
Commissions on Trades
In its simplest form, a broker-dealer earns a commission each time a client places a trade. This charge might be a flat few dollars or a small slice of the transaction amount, but multiplied by thousands of daily orders, it builds a sturdy income stream. Commissions cover the cost of order routing, record keeping, and compliance checks.
Even discount platforms that advertise “zero-commission” trades still collect payment for order flow, a practice in which larger market makers send the broker a fraction of a penny for directing each trade their way. Taken together, these tiny fees create a steady river of cash that supports customer service teams and trading technology.
Markups, Markdowns, and the Bid-Ask Spread
Sometimes the firm stops being a broker and becomes a dealer, meaning it briefly owns the security itself. When acting as a dealer, it quotes a buy price (the bid) and a sell price (the ask). The cents in between form the spread, and with high trading volume, those cents add up quickly.
If the dealer buys a bond at $99.90 and sells it minutes later at $100.00, the ten-cent difference per bond becomes profit. Because spreads are usually widest on less-traded securities, firms willing to hold inventory and provide liquidity can earn healthy returns without raising a single invoice.
Account and Advisory Fees
Beyond the trading floor, broker-dealers charge ongoing service fees tied to the size or activity of an account. A yearly maintenance fee can grant access to market research, toll-free phone support, and paper statements, while advisory programs charge a small percentage of the assets they manage.
Because these fees rise alongside portfolio values, the firm’s interests stay aligned with the client’s growth, creating a partnership that benefits both the investor and their business finances. Some brokers also collect custodial or inactivity fees, ensuring revenue even when markets are quiet. Steady, predictable, and easy to explain, service fees have become a pillar of modern brokerage income.
Underwriting and Selling Agreements
Broker-dealers play a starring role when companies raise fresh capital through new stock or bond offerings. In a traditional underwriting deal, the firm buys the entire issue from the company at one price and resells it to the public at a slightly higher price, pocketing the difference. Even in “best-efforts” sales where unsold shares can be returned, the broker-dealer earns placement and marketing fees for tapping its investor network.
Because regulators keep a close eye on these deals, firms rely on strong compliance teams and specialized broker-dealer audit services to ensure every document is accurate and every disclosure is clear. The payoff for shouldering that responsibility can be substantial, especially during busy IPO seasons or bond booms.
Conclusion
Commissions, spreads, service fees, and underwriting profits together form the four main ways broker-dealers earn their keep. Each revenue source has its own risk level and workload, so most firms blend them to create a balanced business model. By recognizing how these streams flow into the broker’s coffers, investors can compare pricing, question hidden charges, and choose partners whose incentives line up with their own long-term goals.