Finding a Stockbroker

The traditional perception of stockbrokers is as white-haired Etonians in pinstriped suits and cocky young men in braces, all spouting impenetrable finance-speak and charging a fortune for their services.

In recent years, stockbroking has managed to distance itself from such stereotypes, and now the many men and women who offer their services do so at affordable prices and in language that can be easily understood.

What makes this shift in image all the more satisfying is that a stockbroker is essential if you want to invest in shares. You simply cannot trade without one; it’s the rules. Only brokers are allowed to deal on the stock market. Even if you choose to buy your shares through a bank, they will have to go through a stockbroker.

More than 12 million people in the UK invest in stocks and shares, and every last one of them has a stockbroker.

There is a huge range of services available, and the sizes of charges – paid through set fees, commissions or a combination of both – also vary a great deal. But there are, basically, three levels of service:

• execution only,
• dealing with advice,
• portfolio management.

Known also as the less dramatic ‘dealing only’, execution only means your stockbroker will only carry out the buying and selling of shares at your instruction, and will not offer any advice.

Execution only brokers are popular with both novice and experienced investors because they are efficient and cheap, though fees can vary widely, ranging from about £20 to a several hundred pounds, depending on how big and successful a firm is.

Dealing with advice is the traditional way that stockbrokers operate, offering their views on events in the stock market, listening to clients’ investment ideas and explaining anything clients don’t fully understand. For this level of assistance, you must pay more than for execution only.

The most expensive and detailed level of service is portfolio management, which can be separated into two sub-categories:

• advisory,
• discretionary.

In the case of the former, your broker will come up with proposals for your investment portfolio, but will not act upon them without your permission. For the latter variety, the broker will take over the running of your portfolio, reporting occasionally to you on how it is doing.

To find a stockbroker, try a business directory such as the ones listed in our Business Directory pages, ask acquaintances who invest (preferably the successful ones), or get your independent financial adviser (IFA) to steer you in the right direction.

An excellent way to find the right stockbroker for you is through the Association of Private Client Investment Managers and Stockbrokers (APCIMS).

Most private-client stockbrokers – ones who deal with private individuals rather than institutional investors such as large investment banks – are members of APCIMS.

All members' details are held in the association’s online directory, that allows you to search for a particular stockbroker or the type of firm best suited to the needs of your portfolio.

Make a shortlist of brokers you find attractive and arrange to visit each one. Not only do you need to get along with the person taking care of your investments, but you also need to know that he or she deals with similar investments for other private clients and offers all the services you need.

For instance, do you want a strategy that is lower in risk and – potentially - returns, or a high-risk strategy with a greater chance of profits - or failure?

Remember: the value of your investments can go down as well as up, and just because a stockbroker has a successful record, this doesn’t ensure that he or she will make a success of your portfolio. Past performance is no guarantee of future returns.

Make sure the firm you decide upon is regulated by the Financial Services Authority, which enforces strict rules and guidelines for your protection.