Saturday, March 13, 2010

 

Brokers - What to look for


It's a good idea to shop around a bit when looking for a broker. Different investors' needs will vary, but some things you might want to consider are
Should you go with an advisory or non-advisory broker? John Synott, writing for the Australian, looks at the alternatives:
Net a breath of air after stuffy full service

John Synott From: The Australian February 14, 2007 12:00AM

CLINICAL psychologist Linda Chamberlain took her time coming to online stockbroking.

She says it was a breath of fresh air compared with the expense, and poor service of the so-called full-service broker she had been using since the early 1990s.

Her investing days had begun with a stockbroker friend of the family, but when he moved on there was little advice from his replacement while some hefty fees made her feel that she did not count much as a client.

Still, in that period, her blue chip portfolio had managed to almost quadruple in value. And her accountant had been urging her to borrow to invest in the share market to reap tax benefits and long-term share price growth.

In November last year, she took out a Westpac margin loan using her shares as security and has since bought BHP, Rio, Brambles and some bank stocks online using Westpac Broking ($24.95-$29.95 per trade).

In the swing now, she is going to buy $10,000 of another stock each month this year.

She uses the online broker's site for research almost daily and reads newspaper financial pages at least once a week. She also bounces off potential pick ideas with a friend, who has made good money borrowing to invest in blue chip shares.

Her own stock investing targets include Santos and David Jones, plus other names in the pharmaceutical and retail sectors.

"My intention is to invest my way through the share market's top 20 shares," Chamberlain says.

"My advice to anyone starting out is to read up on investing and the market. I would not buy anything unless it had a long-term record of making profits. Also, you have to be able to deal emotionally with taking on debt."

Yet, Kris Freeman, who runs her own national calendar company, has no complaints about her full-service stockbroker at ABN AMRO Morgans in Brisbane.

The money that had been sitting for years in a bank account with a view to buying real estate has earned 30 per cent in seven months from a dozen blue chip stocks. "I am not a savvy investor; I am naive about the stock market but that is a pretty good result," she says.

The stocks included AGL, Telstra 3, QBE, Woolworths, Westfield, NAB, and Babcock & Brown Infrastructure. Her broker (and financial planner), Susan Rallings, says it is important to spend time upfront to devise a strategy around what you are trying to achieve -- for instance, whether you are going to have a long-term portfolio or be a frequent trader.

"A lot of people feel they do not get the level of service they expect from a full-service stockbroker," Rallings says. "It's more than picking a few shares and hoping for the best."

As such, the fees, including a financial plan, were 1 per cent of the portfolio value, although 1.5 per cent is more typical.

Retail strategy manager at ABN AMRO Morgans Rebecca Sullivan says it can take work to find the right stockbroker as styles vary.

"Getting the right stockbroker, who is in tune with your approach, can take some searching around. We encourage people to speak up if it is not working out so we can find someone else who works for them, who they can bounce ideas off," she says.

"Other investors don't want advice and are happy to do their own homework and trade online."

Sullivan claims the thirst for quality research on stocks is bringing clients back from discount stockbrokers, as is access to floats -- of which there were 31 last year. One example was Ausenco, which started at $1 and rose to $4.

"Our research shows clients want more information, but they don't want to be told what to do all the time -- so they go online, but quality is the question," Sullivan says.

In any case, more and more investors are varying their investing mix to include some online share trading, says Brett Spork, Etrade CEO and a former Macquarie stockbroker. "I have money with two different managers but I keep a portion to manage myself, because I am looking for different types of returns from the rest of my portfolio," Spork says.

"The cost of full-service broking is increasing and to make money they have to have bigger and richer clients, thus sending the majority of clients to the self-directed channel.

"The challenge for online brokers is to provide these investors with research and information to make good-quality investment decisions."

While the booming stock market means easy, steady growth for online brokers looking to attract new customers, Gary Tilton, head of NAB Online Trading, still expects more clients to switch from full-service to online brokers when the market slows down.

"About half of NAB clients do retain a link with full-service brokers, especially for more ready access to new company floats," he says.
Opening an account with a stockbroker is similar to setting up a bank account. Basically, you have to identify yourself and show that you are creditworthy.

You'll need to have cash available for the broker to accept buy orders from you, so normally there will be a minimum amount of funds you will need to deposit into a Cash Management Trust (CMT) before you can begin trading. When you sell securities the broker deposits your cash into this same CMT.

And like your bank savings account, you'll earn interest on the CMT balance (though usually at a slightly higher rate than a savings account).

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