Brokerage vs Investment Bank – Which is better?

In regards to invest, many investment beginners want to hop directly along with both feet. Unfortunately, a small amount of investors is successful. Investing in anything requires a point of skill. You must understand that few investments are really a foregone conclusion you will find risking potential losing money! So to jump right in, it is not only important to study more about investing and exactly how everything works but also to figure out what your goals are.

Here we will be comparing two significant ways of investment and find out which one is better. To start, let us first understand what are Brokerage firms?

Brokerage firms are financial institutions that allow you to buy and sell securities. They go about as the middle man between the buyer and the seller. Depending upon the brokerage firm type you select, you can either make your purchases and sales by means of internet, telephone, or smartphone. Brokerage firms generally charge per purchase or sell order with assisted telephone orders being more expensive.

A full-service brokerage firm is a firm that provides a range of financial services in addition to allowing you to purchase and sell securities. These firms can give clients financial planning services as well as consulting services. They can also offer trust services and wealth management services. Obviously, the level of service you receive is reflected in the commissions the brokerage firm will charge on your orders.

Now let me put some light on what is an Investment Bank?

An investment bank is a financial intermediary that performs various financial services. The majority of Investment banks specialize in financial transactions that are large and complex, such as acting as an intermediary between a securities issuer and the investing public, underwriting, facilitating mergers and other corporate reorganizations and acting as a broker or financial advisor for institutional clients.

Major investment banks include Goldman Sachs, Citigroup, JPMorgan Chase, Morgan Stanley, Credit Suisse, Bank of America, and Deutsche Bank. Numerous investment banks specialize in particular industry sectors. Many investment banks additionally have retail operations that serve small, individual customers.

Brokerage VS Investment Bank

There are many factors that can differentiate between a Brokerage firms and an investment bank, but here we have selected and listed some basic factors.

  • Size of a business

Business brokers firms typically handle deals with cost less than $2 million while most investment bankers won’t consider a deal unless it has the potential to cross the $2 million thresholds. The best investment banks concentrate their energy on deals in the range of $5 million or more.

  • Type of sale

Brokerage business deals are direct asset sales even though an important portion of assets may be intangibles. Investment banks also sell assets, but they also specialize in selling securities or shares of stock in the business to investors.

  • Acquirers

In a business sale with brokers, acquirers are the people or small groups of individuals. But in Investment banking, acquirers are generally corporations as well as groups of individual investors.

  • Preparation and Planning

Business brokers may offer advice about preparing the business for sale, however, the ultimate responsibility for planning and preparation falls on the shoulders of a seller. Investment bankers are personally involved with planning and preparation as they build up the story they will use to sell your company to buyers and investors.

  • Fees Structure

Brokers receive a particular percentage as a commission on the transaction after the deal closes, somewhere around 10%. Since investment bankers are required to invest critical energy into the sale with no assurance of closing, they charge a monthly retainer that is credited toward the success fee, which is a structured commission on the final sale.

Which one is better?

After a detailed comparison between Brokerage Vs Investment banks, we have drawn some conclusion, and here they are.

The size of your company will reveal to you which service will probably suit you. If the value of your business is less than $5 million or $10 million or has less than $500,000 – $2 million in EBITDA, it might be a tough task for you to find a willing investment banker. On the other hand, acquisitions of a very large company typically require financing knowledge and licenses that many business brokers do not possess.

Factor in the kinds of acquirers who are most likely to be interested. Business brokers will in general work with individuals or small groups. Investment bankers frequently work with large corporations or with individual investors who are extremely wealthy.

Posted By : FinTec Buzz // in Business