Choosing a Stock Broker

Online Share Dealing » Choosing a Stock Broker

Stock Broker Types Explained

Online Share Dealing

There are now easy, quick and inexpensive ways to buy and sell shares, many of which can be done remotely (i.e. without meeting the broker). Here we have a look at some of the key distinctions in Stock Brokers and some of the key things to bear in mind when making a decision.

Three Types of Broker

Depending on the level of dealing you're thinking of, and your confidence in your information and judgment, there are broadly three types of service available.

  • An "execution only" service is one where your broker acts only under your instructions, with no advice offered. This is the most common type for remote share dealing, such as Internet dealing.
  • Usually for a higher fee, "plus advice" services are available, where the broker will offer professional guidance with your trading where necessary, still acting under your ultimate decision. This type of service is normally only offered by private client brokers, where you will have a personal point of contact (although this might not necessarily always be the same individual).
  • A "discretionary" service allows your broker control over the portfolio, them having the authority in law to buy and sell shares on your behalf, within agreed contractual guidelines. This type of service is typically for larger investments of around £40,000 plus. Although this type is the most expensive, it is also the most profitable type of arrangement for a broker.

Further Differences

If you're looking for a degree of involvement with the company you own the shares in, a typical execution account may not be sufficient. The traditional concepts of receiving a share certificate, being added to the list of shareholders and being invited to the AGM (Annual General Meeting) are no longer present for these types of arrangements. Instead, the shares are held in a nominee account, along with all the other shareholders using the same broker. It is the broker's name on the shareholder's list. All corporate actions are dealt with via the broker and may be charged for, including your vote at an AGM. The other advantage is that you don't have to trade your shares through the same broker when you decide to sell.

The most popular way of "execution" type trading is now via the Internet. This allows instant trading (in contrast to the often long settlement time of certificate type dealing) and you can even send your instructions when the markets are closed for your trader to deal when they reopen. It is also worth bearing in mind that many online brokers offer standard stock advice on their website, as part of your standard service, meaning it can be a good initial way of testing the water of trading.

Summary

Consider the level and type of involvement you want with your shares before you start trading. Once you know what type of service you're looking for, it can be easier to check the charges involved and compare between different brokers. A good starting point for this can be a name you're already familiar with elsewhere, such as your bank, and comparing others from there.

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