Investment bank is a dissection of financial organizations that takes care of the formation of new charges and dues and security tools. Investment banks sell their services to individual, organizational, financial, and pension fund shareholders.
They also provide advice to many businessmen and big companies and organizations. Investment banks play a major role in providing services to various companies and government entities to get capital financing. JP Morgan, Citigroup, UBS, HSBC, etc are the most popular multinational investment banks which are spread all around the world.
A brokerage firm is a firm deal with the transactions on account of the client. Many brokerage firms also provide investment advisory services to companies, businessmen, etc. They extract their profit from commissions on the orders which are given. They collect a percentage or we can say a fee of the total value of each transaction. They get orders in a variety of ways.
Investment Bank vs Brokerage Firm
The main difference between Investment bank and brokerage firm is that a brokerage firm has customers who want to buy and sell things whereas an investment bank has customers who want to uplift their money.
Comparison Table Between Investment Bank and Brokerage Firm (in Tabular Form)
| Parameter of Comparison | Investment Bank | Brokerage Firm |
|---|---|---|
| Concept | They take care of large and confusing complex transactions such as underwriting. | Brokerage firm is a financial services company that allows ordinary people to buy and sell stocks and commodities. |
| Term | The term period of Investment bank is from medium to long. | The term period of brokerage firm is from short to medium. |
| What they offer? | Investment bank offers customer-specific services including financial and tax advice. | Brokerage firm offers a lot of services including money management, estate planning, etc. |
| Source of Income | The source of income of investment bank include fees, commissions or, profit on trading activities. | Brokerage firms earn a lot of income from real estate advisory, providing loans to clients, health cards, gold refining, etc. |
| Common Examples | Evercore Partners, HSBC, RBC Capital Markets, Wells Fargo Securities, JP Morgan, etc. | BSE Ltd, Angel Broking Pvt Ltd, Karvy Stock Broking, Black Rock, etc. |
What is Investment Bank?
The word investment bank is defined as a commercial organization that carries out complicated monetary and banking transactions. These banks have the main goal to create a relationship and a strong connection between the huge organizations and the shareholders and the stockholders.
This bank provides great services to its clients in many different ways including helping of government and institutions in providing them complete and proper security measures, helping the investors in buying stocks and commodities, and providing advisory services and so on. The popular multinational investment banks include Goldman Sachs, Citibank, SCB, JP Morgan, etc.
Investment banks have outside customers, but also trade their accounts. Thus, a dispute of engrossment can take place. The banks produce their income by charging fees for its advisory services.
What are the services that are provided by the Investment Banks?
- Approval of proving the security measures.
- Raising the capital
- Research services
- Advisory services
- Asset Management services
- Union and investment services
- Income and wealth services
What is Brokerage Firm?
Brokerage Firms help in dealing in providing security measures, buying and selling of stocks and commodities, etc for earning profit. In the Brokerage firms, the money is given by the buyer to the seller, for share transfer. The brokerage firms act as dealers and lend services to the shareholder or the stockholder which helps them to trade in securities and charges an amount as undertaking for their services. Brokerage firms are of many types, that provides a variety of products and services at a different range of costs and fees. The most popular Brokerage firms include UBS, TD Ameritrade, BSE Ltd, etc.
What are the 4 different types of Brokerages?
- Full-Service Brokerage
- Discount Brokerage
- Captive Brokerage
- Independent Brokerage
What are the services that are provided by the Brokerage Firms?
- Services regarding execution of trades
- Storage or safekeeping of securities
- Investment advice and research services
- Cash Management Services
- Low commission services
Main Differences Between Investment Bank and Brokerage Firm
- Brokerage firms are commercial and monetary organizations that help you buy and sell securities. They direct as the central man between the buyer and the seller whereas Investment Banks is the commercial and financial services organization or institutional division that enables themselves in advisory-based commercial transactions on the account of the individuals, institutions, and government organizations.
- There is a high exposure to risk in Brokerage firms whereas the risk factor is low in investment banks as compared to brokerage firms.
- Investment Banks obtain their income from profit from trading practices, fees, commission, etc whereas brokerage firms obtain their income from devices like commercial and tax advice, by providing good loan facilities to their customers, etc.
- The client’s foundation of the brokerage firms is much higher than the investment banks.
- Brokerage firms relate day to day drift in the merchandise whereas Investment Banks relate to long term profit earning ability of the program or the strategy.
- For the proper upliftment of the Brokerage Firms, efficient and orderly continuous trailing and supervision of shares and commodities are needed, to avert deprivation whereas Investment Banks requires a vital and a dynamic observation by the investors, to earn a profit when the market is on higher scales.
Conclusion
Now, we can easily differentiate between the investment banks and the brokerage firms. Investment banks provide securities and also its major objective is to trade in commercial and monetary benefits and provide advisory services.
Both investment banks and brokerage firms have a primary goal in money-making, but the difference is that, in brokerage Firms, the broker wants to create a source of income by buying and selling securities. If both compared, brokerage firms involve much more risk as compared to investment banks.
References
- https://www.aaajournals.org/doi/pdf/10.2308/accr.2004.79.1.125
- https://ink.library.smu.edu.sg/cgi/viewcontent.cgi?article=2625&context=soa_research