Decide what service you need, who can provide it, and how much it will cost
Many investors like to research, select, and buy their own stocks. But, if time is a factor or you’re not comfortable making those investment decisions on your own, here are seven tips to consider when finding a qualified stockbroker who’s right for you.
- Learn what stockbrokers are – and do
A broker is an intermediary between an investor and a securities exchange – the “market” where financial assets are bought and sold. Because the exchange only accepts orders from individuals or firms that are members, you need a broker to buy and sell your trades. Brokers do that for a fee or commission.
Brokers can just be “order-takers”, executing the trades that you want. Or they can be financial advisors – and do much more for you. Ask your advisor what’s best for you and how it fits into your financial plan and goals.
- Decide where you want to invest
If you only want to invest in shares listed in your local stock market, then you’ll have plenty of brokers to choose from. If you want to invest in foreign markets, you may have limited options. Ask your advisor to recommend firms that can help you with each option.
- Decide what kind of stockbroker you need: discount or full-service
The kind of broker you need depends on your investment style. Are you a frequent trader – or a buy-and-hold investor?
Frequent traders are usually quite active and don’t hold stocks for long. They want quick gains that are better than the market average, and they may make many trades in a short time. If you’re a frequent trader, you’ll want a broker with low trading fees or you’ll end up paying much of your return out in fees.
Buy-and-hold investors are usually more passive and want to hold stocks for the long-term. They’re content to let their investment appreciate over time, so may be less concerned about fees as they don’t incur them as often.
Full-service brokers deal directly with clients. They can discuss your portfolio and investment ideas, and offer individual advice and recommendations so you can make the final decisions, but this isn’t cheap. They usually provide research, investment planning and recommendations, and market intelligence and execute your trade orders.
Discount brokers act as intermediaries between you and a more prominent broker, so you need to check them out more thoroughly before signing up. They are usually cheaper and just carry out your trading instructions once you’ve done the research. So, you must make all your own decisions, though you may be able to ask a broker for advice for a fee.
- Shop around and get referrals
Shop around and compare brokers, and ask for referrals from people you trust, so you don’t hire the first broker you find. When you get a shortlist of firms – or options – check to see if the broker’s style and service suit you.
You need to be able to get along with your broker and understand the advice you get, but the broker should also be fully licensed by the local regulatory authorities and registered (either individually or through their firm) with the securities authority.
You also want to look at the kinds of services the broker offers – and find out the costs for each. The “order-takers” may be cheaper, but just provide a barebones trading service and nothing else. The full-service brokers may cost more, but send you regular research notes or have websites full of information.
- Carefully check costs
Many investors just focus on commission costs, which brokers can charge for each trade. But, stockbrokers can charge a wide range of fees that can get quite complex, so it’s hard to know what you’re paying, especially if you’re dealing with a discount broker. Some may promise low rates, but then charge high currency conversation costs or excessive account management fees. Check the interest rates your broker may charge on accounts and whether there are fees for making withdrawals. Also read the fine print in account agreements and fee summaries so you know the various rules you may have to abide by and what other fees you might have to pay – such as custodial fees or fees for wiring funds, transferring assets, or closing accounts.
- Find a flexible, convenient service
Look for flexibility and a range in services that matter to you. Consider whether the broker offers tax-advantaged accounts as minimizing tax can make a big different to your investment returns, especially if you pay higher taxes. A multi-currency account – which allows you to hold cash in several different currencies – is a must for international trading and should be provided without extra charges. Most stockbrokers charge commissions every time you convert currency, so you want to minimize how often you do that.
- Beware of “deep discount” brokers
Do your homework before you start and make sure you only work with reputable firms, so you stay safe – whether investing abroad or at home. Ensure you only use companies regulated under your local securities law. If someone cold-calls you to sell you shares, hang up and report it to your local regulator.
