For most share dealing you will need to use a stockbroker that is authorised and regulated by the Financial Services Authority (FSA) and a member of the London Stock Exchange. While the term stockbroker is still in use, it is more commonly referred to as simply “broker”.
There are three types of stockbroking services:
Discretionary
The stockbroker has general discretion as to how he manages your portfolio.
You can narrow the discretion by giving the broker guidelines. For instance, you can ask him to pick shares that provide high income rather than capital growth, or to investing only in ‘ethical’ companies.
For his services you pay a commission on dealing (usually around 1.65%) and possibly a quarterly or annual management charge based on the value of your portfolio. If you are paying a management charge, your dealing commission should be lower (around 1%).
Discretionary brokers will charge you much more than Execution-only brokers.
Advisory
The stockbroker will contact you to suggest changes in the composition of your portfolio, but does not have the authority to trade on a completely discretionary basis.
Charging structures will vary from broker to broker. Some charge more for an advisory service than for a discretionary service, because there is more work in having to contact you before every deal.
Under FSA rules you will have to fill out a form describing your financial situation and your objectives, so that the broker can provide a suitable service.
Execution only
The broker’s primary function is to execute the buy/sell instructions which you give him. The broker does not give advice either proactively or at your request.
SimplyStockbroking is an ‘execution-only’ Stockbroker.
Varying degrees of administrative help will be provided – e.g. summaries of your year’s trading for your tax return.
Execution-only brokers make their money from dealing commissions, and the market is very competitive. Typically, the percentage charged on a purchase or sale depends on the value of the transaction, with the percentage dropping as the value rises. There will usually be a minimum charge.
SimplyStockbroking’s charges are among, if not the, lowest available.
Opening an account with a stockbroker
When you’ve chosen your stockbroker, ask for an application form, or fill one in online.
In most cases, you will often have to deposit money with the broker before you trade. Clients increasingly keep money in their broker’s client account, rather than making a payment every time they buy shares.
You may be offered the option of transferring existing shareholdings for which you have a share certificate into the broker’s nominee account.
The broker will issue you with a client account number and PIN/password which you will usually have to quote or key in when giving buy/sell orders on the phone or online.