Typically, investors pay a lot of money to their brokers. The time is ripe for investors to now make money off their brokers. Here are the five main reasons to consider buying the stocks of brokers.
Rising interest rates
The era of near-zero interest rates is over. Interest rates are likely to rise over the coming years. Interest income is one of the biggest contributors to the earnings of the brokers.
Brokers invest uninvested funds of their clients in their custody; they keep the interest they earn and often do not pass it on to the clients. As interest rates rise, brokers will earn significantly more on the uninvested funds of their clients.
Brokers also earn interest on loans and securities. As the bull market marches on, investors continue to buy more and more on margin. The interest on the margin debt is one of the most lucrative parts of a broker’s business.
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Money-market-fund fees
To deal with the near-zero-interest-rate environment, most brokers have forgone fees on money-market funds. As interest rates rise, brokers will once again be able to earn handsome fees on many billions of dollars that reside in money market funds at the brokers…Read more at MarketWatch
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