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What’s the deal with brokers?
Mark Atherton on share-buying for beginners
The traditional advice given to private individuals used to be to seek out a personal recommendation from one of your friends or to ask your bank manager. But though these methods can still bear fruit they may be a bit outdated for today’s new breed of investor.
Kevin Sloane, of the Association of Private Client Investment Managers and Stockbrokers (Apcims) says: “Personal introductions work-ed much better 20 years ago, when a broker was someone you might meet at the golf club or at a dinner party.”
That still happens, but much less so than in the past. The once pivotal role of the local bank manager in all matters financial has also undergone a change, says Mr Sloane. Twenty years ago many branches had a section devoted to dealing in stocks and shares, and the manager, or the head of securities, would be able to give advice. Today, though branch dealing is still possible, stockbroking services are more centralised.
So what is the best course for the bemused private investor? For those who are concerned primarily with value for money there are several websites that compare stockbrokers on price. Stuart Glendinning, of Moneysupermarket.com, the price comparison website, says: “We offer investors the chance to see which brokers offer the best deal for a given size and number of trades over a given period of time, including administration costs.”
Someone who deals online once a month with an average trade of £3,000 would be best off with Hoodless Brennan. It charges a flat fee of only £7 a trade with a month’s commission-free dealing, so 12 deals in a year cost £77. At the other end of the scale, the same deals done through Charles Schwab Europe would cost £24 a time, or a total of £308 including administration costs.
For those who prefer the telephone and have a bigger average trade of, say, £10,000, the best deal again comes from Hoodless Brennan, at £77.
For some people, online comparison sites are too impersonal and they may prefer to speak to a stockbroker before making a decision. Apcims has a directory of 217 brokers’ addresses and phone numbers. It can be accessed through its website at www.apcims.co.uk or by ringing 020-7247 7080. Mr Sloane says: “We can supply investors with a list of brokers in their area.”
When you talk to prospective brokers, do not be frightened of asking about charges, but do be clear about what you want. At the simplest level, you may simply want to sell a few privatisation shares, in which case an execution-only service, such as Hoodless Brennan or IWEB, would be perfectly adequate.
You may have some ideas about share buying but want some help from a broker who could offer an advisory service. This is where the broker may suggest ideas but you make the ultimate decision.
Finally, you could have a large sum of money to invest, perhaps from an inheritance, but little knowledge of the stock market. In this case, you could benefit from a discretionary service, where the broker makes all the buying and selling decisions.
It is important to shop around. Mr Sloane says: “Contact several brokers and look for someone who is on your wavelength and with whom you feel comfortable — you may be dealing with them for a long time.”
For more investment articles visit www.timesonline.co.uk/invest
On page two, Alexander Davidson on brokers...()
TALKING POINT: City professionals or mere barrow boys?
In the late 1980s the licensed dealers, the barrow boys of the industry, looked after small private clients. Dealers in such firms needed neither knowledge nor experience, but only a licence, which the Department of Trade and Industry readily granted. Former barmen, bricklayers and the unemployed were among the new breed of dealer just before and after Big Bang.
Some of these former dealers now work as half-commission brokers. These are advisory brokers, often self-employed, who deal with their own book of clients, splitting commissions earned with the City firm that backs them. The firms tend to have limited access to research and, in some cases, have had a cowboy image.
It is difficult to distinguish a good broker from a dubious or incompetent one, especially in a less well-known firm. Qualifications don’t make or break a good broker, but integrity is paramount. If you are to invest, it is imperative that you do some of your own research, get to grips with City jargon and financial statements, and practice money management, including cutting your losses and running your profits. Do not let your broker run your portfolio without input from yourself, even if it is discretionary.
If your broker makes a stock recommendation, follow the advice of Bob Beckman, a licensed dealer of the Big Bang era, and put down the phone for 20 minutes while you think about it. Ring back only if it seems right.
ALEXANDER DAVIDSON
- How the City Really Works, by Alexander Davidson, is published by Kogan Page, priced £12.99.