These brokers invest your money in your chosen unit trust or Oeic and then share any commission with you that they make. For example, if a unit trust company offers 3% commission to brokers who introduce business to them, then the discount broker will make the investment and share this commission with you. As some investment houses do not offer investors any discounts for going direct, it can be more cost-effective to invest via a discount broker than to go direct.
TIP: Discount brokers only offer commission rebates if they receive commission. So where no commission is offered on a fund, as is the case with many low-charging trackers, the discount broker will not act for you.