Compare Stock Brokers in the UK
Use our comparison tables to compare stock brokers in the UK. Compare key features like research, added value, IPO and placing access, commission and costs.
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How to pick a Stockbroker?
Your choice of stockbroker indeed any financial service provider or intermediary will often depend on your circumstances, requirements and expectations. If you have a large investment portfolio that you want a broker to manage for you, then you will be looking for a certain type of provider and that’s likely to be a different stockbroker from the investor who has a smaller portfolio, is cost-conscious and trades for themselves.
Whatever your requirements, there are some straightforward rules and tips about choosing your stockbroker, let’s look at these starting with credentials.
Sadly, there are plenty of share trading scams and fraudsters out there, so it’s best to always know exactly who you are going to be dealing with or through.
Firstly, are they are a stockbroker?
Is the firm you are considering dealing through a member firm of the London Stock Exchange and are they regulated and authorised by the FCA, the Financial Conduct Authority?
You should also check out the company’s own website and contact details and test them to make sure they are genuine
Bonafede firms shouldn’t have any problems with you “kicking their tires”
Let’s just recap on what stocks and shares are and why we might invest or trade in them
Stocks and shares are a form of investment that allows individuals to own a stake in business or venture.
Companies and businesses sell equities or shares in their business to investors, the business uses the money raised from its new shareholders to operate, grow and invest in the future of that business. In return for their investment, shareholders are usually entitled to a vote or say in the running of the company and a share of the profits, if there are any. Those profits are distributed through the payment of dividends.
If a business does well then, its shares should rise in value benefitting both the business and its shareholders, who see their investment grow in value
Ordinary shareholders are, however, the lowest ranking creditor in the event of default or bankruptcy of the business and in those circumstances, the shareholders will likely lose all their investment.
What can you trade through a stockbroker?
Firstly, of course, the stocks and shares of companies listed and quoted in the UK, depending on the broker you may also be able to trade in stocks from other markets such as Europe, the USA and further afield.
As well as stocks and shares you are likely to be able to trade ETFs or Exchange Traded Funds, these products are specifically designed to track the performance of a particular index, sector, strategy or investment style and the funds can be traded in the same way as other stocks and shares.
Stockbrokers may also offer their clients access to the fixed income markets where they can trade and invest in bonds and other debt-related securities. Some stockbrokers also offer savings products such as ISA’s and access to mutual funds.
The types of services a stockbroker may offer you
Stockbrokers typically offer their services in three separate tiers that are based on a client’s classification, which are as follows:
Execution only: Under execution only a client makes their own investment decisions their stockbroker does not advise them but instead acts merely as their agent executing and settling trades. The broker will also provide their clients with contract notes, statements of account etc. and these days access to an order routing service either online or via the phone.
Advisory: Not all stockbrokers offer an advisory service as it requires specialist, highly qualified staff and entails a higher degree of compliance. Those that do will tend to charge more for this service than they do for an execution-only service.
Prospective clients will need to complete detailed questionnaires before account opening to help quantify and asses their investment goals and attitudes towards risk etc. The broker will aim to tailor their advice to match those investment goals and risk attitudes.
Advisory services tend to be more personal than the execution-only service and clients will have their own dedicated points of contact or advisors at the broker. Note though there is likely to be a minimum of level of investment or activity required to access these services.
Discretionary: Under discretionary management, a client hands over the running of their investment portfolio to their broker. These days this business is usually handled by the wealth management division of a stockbroker.
Once again prospective clients fill out detailed questionnaires about their goals, financial status attitudes towards risk, sources of income etc. and the client may also be invited in for a face to face meeting. So that the individuals and the firm who will be managing the portfolio know exactly what their clients are looking for and they, in turn, can explain the firm’s investment strategy and approach to the markets to the potential clients.
Discretionary management services are targeted towards higher net worth individuals and there will be a minimum portfolio size to qualify for them, though this figure will vary by provider
What charges will a stockbroker make?
Charges will also vary between providers and will depend upon the type of services and transactions that a client undertakes. Execution-only stockbroking tends to be the cheapest and there are several specialist providers for these services offering low-cost execution and settlement.
Some offer a fixed fee service regardless of trade size while other brokers will have a commission schedule that varies by value of the trades executed.
As we noted above advisory clients are likely to pay higher commission charges than their execution-only brethren, as they are paying for advice and expertise, while discretionary customers will pay trading commissions and pre-agreed investment management fees.
As well as trading commissions and management fees, where appropriate, stockbrokers may also charge additional fees around areas such as compliance and custody
Over the last twenty-five years or so physical share certificates have been largely phased out, share certificates have been dematerialised into an electronic format in which ownership of a particular security is recorded on a computerised ledger, that is amended as and when transactions and a change of ownership occurs.
The settlement of trades and the transfer of ownership of UK securities in London takes place through a central electronic settlement system known as CREST.
To facilitate this, stockbrokers encourage their customers to place their shareholdings, in an electronic format, within the broker’s nominee accounts. Which means they are easily available for trade and settlement. The standard settlement period for trades on the London Stock Exchange being T+2, or two just two days after the trade date. As such the broker needs to have their client’s stock or cash on hand to meet those deadlines.
Holding your shares within your broker’s nominee account certainly makes sense from trading and ease of settlement standpoint
However, there are some potential drawbacks to doing this, one of the benefits of being a shareholder is the ability to vote on key matters in the governance of the company that you are a shareholder in and to attend their annual general meeting etc.
However, a nominee is effectively a pooled account and your individual shareholding may not be recognised by the company on its share register because the company sees just one entry for the combined holdings of all shareholders within a given nominee account.
So, it may be that you can’t vote your shares in the normal way and you may not receive communications from the company directly. There may also be restrictions around scrip dividends, whereby a shareholder elects to receive additional shares instead of cash dividends, and the treatment of other corporate actions and shareholder perks.
If you are considering placing your portfolio into a nominee account you should have a conversation about the treatment of voting rights, dividends and corporate actions etc. at your stockbroker, before you do so
Can you deal for free through a stockbroker?
One of the most recent innovations in the markets is the ability for clients to deal in stocks on a commission-free basis. These services are now being offered by the largest US online brokers and some European providers too.
But as we know, there really is no such thing as a free lunch
These services are either subsided through payment for order flow or offered as a promotional loss leader, designed to attract new accounts. In some cases, there are a restricted list of stocks you can trade commission-free and the commission-free offer may only extend to the opening side of a trade. There may also be additional fees for custody and settlement. That's not to say that retail traders shouldn't consider these services but rather that they should view them for what they are.
Making your decision on what stock broker to choose
When picking your stockbroker be clear about what type of service you will require and what you are willing to pay for it. Are you going to be an active investor regularly dealing and adjusting your portfolio, or will you pursue a long term buy and hold strategy and only check your portfolio once or twice a year?
Will you require advice from a stockbroker or are happy and capable enough to be an execution only client? If you have a sufficiently large portfolio or perhaps an inheritance you wish to invest might then the discretionary management route be what you are looking for?
Only ever deal in stocks and shares through a reputable and regulated stockbroker or intermediary
You can use the registers mentioned above to confirm their credentials and don't be afraid to call the firm and ask questions about their services and charges. You may even be able to make an appointment and visit them at their office, if appropriate.
Every investor’s needs and requirements are subtly different so take your time and do your homework before making your decision. It may be that you decide to have more than one stockbroking account, perhaps opening a discretionary or advisory account with one broker and a low commission execution-only account with another provider.