The business of the investment banker must not be confused with that of the bond and stock broker. The two are often combined; but the functions are essentially different. The broker performs a very limited service. He has properly nothing to do with the original issue of securities, nor with their introduction into the market. He merely negotiates a purchase or sale as agent for another under specific orders. He exercises no discretion, except in the method of bringing buyer and seller together, or of executing orders. For his humble service he receives a moderate compensation, a commission, usually one-eighth of one per cent. (12 1/2 cents for each $100) on the par value of the security sold. The investment banker also is a mere middleman. But he is a principal, not an agent. He is also a merchant in bonds and stocks. The compensation received for his part in the transaction is in many cases more accurately described as profit than as commission. So far as concerns new issues of government, state and municipal bonds, especially, he acts as merchant, buying and selling securities on his own behalf; buying commonly at wholesale from the maker and selling at retail to the investors; taking the merchant’s risk and the merchant’s profits. On purchases of corporate securities the profits are often very large; but even a large profit may be entirely proper; for when the banker’s services are needed and are properly performed, they are of great value. On purchases of government, state and municipal securities the profit is usually smaller; but even a very small profit cannot be justified, if unnecessary. HOW THE BANKER CAN SERVE The banker’s services include three distinct functions, and only three: _First:_ Specifically as expert. The investment banker has the responsibility of the ordinary retailer to sell only that merchandise which is good of its kind. But his responsibility in this respect is unusually heavy, because he deals in an article on which a great majority of his customers are unable, themselves, to pass intelligent judgment without aid. The purchase by the investor of most corporate securities is little better than a gamble, where he fails to get the advice of some one who has investigated the security thoroughly as the banker should. For few investors have the time, the facilities, or the ability to investigate properly the value of corporate securities. _Second:_ Specifically as distributor. The banker performs an all-important service in providing an outlet for securities. His connections enable him to reach possible buyers quickly. And good-will--that is, possession of the confidence of regular customers--enables him to effect sales where the maker of the security might utterly fail to find a market.