If you buy and sell shares online, you are usually dealing with an execution-only stockbroker, which executes your trade without giving advice. This way, you will take charge of your own financial destiny – which is a wonderful thing but the onus is on you to make the right investment decisions.
The traditional advisory broking service operates usually as an alternative to the online for those who need their hands held, but the charges are higher for a not always very effective service, and it is losing market share. ‘Old-style stockbroking is manpower intensive and it is being squeezed out. There now tends to be polarization between online broking and investment management,’ says Gavin Oldham, founder and CEO at the Share Centre.
The broker or investment manager will run a discretionary portfolio for larger clients. The charges are lower than on investment funds and in 2004, averaged 0.76 per cent of money under management, according to Compeer.
If you are using an advisory or discretionary service, be selective. Traditional broker standards vary enormously. The broker will often play a game of hard to get, particularly if you would not be a large client.
Provincial brokers tend to give small clients much more time and attention than their London counterparts.
Anywhere in the country, there are far too many brokers who do not know what they are doing and will put you into unsuitable shares and lose you money. Some do it because they are focused on generating short-term commissions.
Make sure that the investment strategy of any broker you deal with matches your own. If you like to invest in safe blue chips, do not use a broker who specializes in speculative small companies.
Never rely completely on your broker’s tips, but do your own research as well. If you have a discretionary account, keep an eye on what the firm is doing with your money. Once the fund is completing 40-50 trades a year, this is the level at which the broker often receives commission, and it may affect his judgment.
In the past, a few brokers have attempted a business model that combines advisory with execution-only and the results have been disastrous. It works only if the two are kept separate. Some traditional advisory brokers today have distinct online divisions which are execution-only and operate like any other online broker. From the firm’s perspective, if the online brokerage is managed correctly, it can provide leads for the advisory or discretionary broking service.
