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What does it mean if “IPOs - normally are sold with an `underwriting discount` (a built in commission)”
When an IPO happens, the buyers pay some price (let's say $20 per share) and the seller (the company) receives a different price ($18.60).  Who paid the commission? Well, the commission caused a spread between buyer and seller.  It doesn't matter who technically pays the commission because it costs both parties.  In an IPO, the company technically pays the commission, but they use buyers' money to do it and the buyer must pay more than he/she would if there was no commission. The same thing happens when you buy a home.  Technically the seller pays both realtors' commissions but it came from money the buyer gave the seller and the commissions pushed up the price, so didn't the buyer pay the commission?  They both did. The second paragraph suggests that if the investment bankers act as a simple broker, buying public securities instead of newly issued shares for their clients, then the commissions will be much lower.  Obviously.  I wonder if this is really the right interpretation, though, as no broker charges 4% to a large client for this service.  I would need more context to be sure that's what's meant. The gyst is that IPOs generate a lot of money for the investment bankers who act as intermediaries.  If you are participating in the transaction, that money is in some way coming out of your pocket, even if it doesn't show up as a "brokerage fee" on your statement.