How to choose StockBroker

May 2, 2009

A stockbroker is licensed, and has direct access to trade shares. Therefore, they can act as your agent to buy or sell shares, for which a fee is charged. A stockbroker may also offer a range of other services including the provision of advice on which shares to buy or sell.

Types of stockbrokers
There are two main types of stockbroker. The main difference between them is whether they offer advice or not.The major types of brokers are:

- Full service (advisory) stockbrokers
- Non-advisory stockbrokers

Full service stockbrokers
Full service brokers offer advice on buying and selling shares, make recommendations and provide research. They also offer other investments such as options, debentures and bonds and compile tailored investment plans. As full service brokers offer advice and other services you generally pay a higher brokerage fee to buy and sell shares.

Non-advisory stockbrokers
As the name suggests, non advisory brokers offer no recommendations or advice regarding the appropriateness of your decision, consequently their brokerage fees tend to be lower than a full service stockbroker. This is an attractive option for investors confident in their sharemarket knowledge and trading decisions.

Non-advisory stockbrokers can be divided in two;

- Telephone based non-advisory
A phone non-advisory stockbroker will act on your telephone instructions to execute an order on your behalf.

- Internet based non-advisory
An internet non-advisory stockbroker will execute an order that you have placed over their internet site by entering it into the trading system. The lower overhead costs of this service frequently mean that the brokerage fee is lower.

Questions to ask your stockbroker
- What type of services do you provide?
- How do you charge for your services?
- Will I receive a regular newsletter or information on any new sharemarket opportunities?
- What sort of information can I obtain on your website?
- Do you conduct client seminars?
- Are you or your firm associated with any of the companies whose investment products are recommended by you?
- Do you offer trading in overseas markets?

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