What Is a Broker?

If you jumped into Covid-19 supplies this year to make money, you almost certainly ended up dealing with “brokers.” The term is standard in finance, yet it was far less common across Latin America in other industries until recently. Now you seem to run into them everywhere.

What is a broker?

The classic definition is a middleman, an intermediary between clients and suppliers. You find brokers in insurance, real estate, vehicle sales, and more. Their main goal is to deliver accessible prices to clients by leveraging volume on the supplier side.

Today brokers matter more than ever. The pandemic opened markets that used to be extremely hard to reach, and speed became the decisive factor for closing deals with buyers. Think government sales or exports to corporations such as Walmart, Coca-Cola, Bimbo, and similar giants.

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The advantages of having a broker

1. A broker invests time hunting products and services for clients who already exist. That means you do not have to run the full sales effort with a commercial team prospecting in every direction.

2. A broker is not your employee and costs you nothing on payroll. They earn commissions on buy-sell transactions under a commission agreement, which makes cost control straightforward.

3. A broker supports negotiations with the end client. They do not handle everything alone. They make the first presentation of your proposal to the buyer, and if interest appears you can sit down together to close the deal. They open the door so you only have to finish.

4. A broker keeps your client accounts alive, follows up, helps you sell more, and assists with collections.

5. Prospecting expenses belong to the broker. You do not pay their travel, meals, or related costs.

The disadvantages of working with a broker

I have seen every kind of situation with brokers across Europe, Asia, the United States, and Latin America. What stands out most is how Latin American brokers often operate.

1. A broker can stretch the truth to bring both sides to the table. In my experience this has created distrust on both sides when the actual deal is negotiated.

2. A broker often fears being cut out, meaning the buyer and seller close directly and leave the broker aside. That fear kills many deals. Fear destroys even the best ideas. You need a solid relationship of trust so brokers share the information and contacts required to finish the deal instead of letting it collapse over a few percentage points of commission.

3. Not everyone who claims to be a broker actually is one. People have approached me as brokers, asked for samples, company information, and contracts, then turned around and defrauded potential clients. Always run a background check on brokers who contact you.

4. A broker must be well informed. Training them takes time, and the effort does not always pay off.

5. A broker is not always registered with the authorities. Even when they deliver excellent work they may request cash payment. Paying in cash is rarely the smartest tax strategy, so work with a broker who is fiscally active, preferably a legal entity rather than an individual.