How to Find a Broker

Prior to investing in the share market you will need to open a brokerage account. Choosing a broker is one of the most important decisions you’ll have to make as an investor. You want to consider the following points before opening a share trading account.

• Full Service Broker or Discount Broker?

Brokers can typically be placed in one of two categories: full-service (or traditional) and discount. Should you decide to use a traditional brokerage firm, you will get one-on-one instruction from a personal share broker. They will offer investment ideas, prepare detailed reports regarding your portfolio, give you hot shares tips, and will generally be easily available via a phone call or email to buy or sell shares, bonds, mutual funds, or other investments you may be interested in. Additionally, full-service brokers offer a variety of different research sources to their customers, provide a detailed run-down of how your investments are doing, and will likely give you share recommendations. Full-service brokers charge significantly higher commissions in exchange for this one-on-one service and guidance. Many brokerage firms offer both full service and discount options depending on your needs and personality.

Discount brokers are geared towards investors who want to make their own trading decisions and do their own research. Typically, they will not offer share investing advice, they simply execute orders once you’ve decided which share you want to buy or sell. Rather than working with a human broker, you will likely do most of your trading and investing online when using a discount broker, you may also phone in your order as well to the first available broker. Some discount firms have recently been offering research that is on par with that of traditional brokerage firms. Investors who choose to use a discount broker will pay significantly less in commissions and fees in exchange for limited to no personal contact or share broker advice.

• Commissions

While the biggest difference between full-service and discount brokers is the cost of each transaction (commission), many times differences in commission prices between two brokerage firms of the same kind can be tremendous as well. One discount broker may charge $25 per trade, while another may charge no more than $10. Generally speaking, a higher price means better service, faster trade execution, or more perks, however this is not always the case and is exactly why it is so important to research and compare brokerage firms before you open an account.

• Minimum Opening Balance and Maintenance Fees

Every share broker has a minimum opening account balance requirement, some are as low as $500, however most are around $1,000 or higher. A general rule of thumb is that you should have at least $1,000 when you first open your account. Some brokerage firms will have a low opening balance requirement but then charge you a maintenance fee if your balance dips below a certain amount. Even though the fee may be low, it can have a significant effect on your investment returns if you are just beginning to invest in shares. For example, $50 a year in fees on a $1,000 account balance is 5% interest.

• Services, Research, Bonuses and Investment Tools

All brokerage firms are different in regards to the investment tools, research, and bonuses they offer to their customers. For example, some brokerage firms may allow you to log in instantly to your account via the internet and print out a detailed analysis of your portfolio, view your account balance for the last 6 months, check your realized and unrealized gains, and view dividend records for the last few years. Other brokerage firms may not offer such features but might have amazing research that you can’t get anywhere else. Furthermore, some firms offer better trade execution time than others.

Some brokerages have recently begun offering Visa Check Cards which act just like a credit card. The only difference is that the money you spend is taken directly out of your brokerage account. This allows you to have the combined functionality of a checking, savings, and money market account with a stocks and bonds investment account. This feature is very convenient and can help to simplify your finances.

• Online Accessibility – Interface and Ease Of Use

Prior to opening an account you should checkout the web page of each brokerage firm you are considering. If you are planning to do the bulk of your research or trading via the internet, the feel of the site is going to be almost as important as the other perks and services offered. If the brokerage website is very difficult for you to use or has a poor or confusing layout than you may want to consider a different firm because you will be interacting via this website often.

Popular brokers in the Australian Share Market:

Brokers that dominate market share in Australia (in decreasing order) include Macquarie Bank, Goldman Sachs JBWere, UBS, Citigroup, Merrill Lynch, CSFB, Deutsche Bank, ABN AMRO, CommSec and Morgan Stanley.