Stockbrokers

A stockbroker is a middleman who buys and sells shares on behalf of his client. He earns his income by taking a commission for the transactions he carries out. These days share dealing is computerised - the broker will almost certainly sit in his or her office and monitor prices displayed on one of the data information services to which he'll subscribe.

Stockbrokers come in all shapes and sizes, some deal with private clients, others are interested only in large institutions who'll make individual transactions for hundreds of thousands or millions of pounds.

The main services offered by stockbrokers are:

Execution-only dealing This is the 'cheap and cheerful' end of the stockbroking market. The investors knows what he wants to buy or sell and instructs a broker to carry out the transaction. The stockbroker is essentially doing no more than play the role of 'message boy'- he gives no advice or guidance. The fees you'll pay for this service ought to be modest. Some brokers will carry out buy and sell orders for you for 1% or less with a minimum commission of around £12.

Moneyextra has its own execution-only sharedealing service. For information click here

Advisory service - the stockbroker offers you a fuller service which will include advice on which shares to deal in. You may even receive investment research carried out by the analysts at the firm. The final decision however will be left with you on whether to buy or sell. Expect to pay more for this service (perhaps between 1.5% -2%).

Portfolio management Sometimes described as discretionary management. Here, you hand over a chunk of cash, £25,000 is likely to be the absolute minimum, but more likely £500,000 or more, and the stockbroker manages your affairs. He'll first want to ascertain what your investment objectives are so that he can take the right decisions on your behalf. If you go for this service expect to pay a additional fee for the management of your portfolio. This could be between 0.5% and 1% but you can negotiate, especially if you have a large amount to invest.

If you deal frequently or hand the management of your portfolio over to a stockbroker, you'll almost certainly need a nominee account, and you may need one anyway just to carry out execution-only transactions.

See Also: Stockmarket Centre

Last Updated: May 2008 © Moneyextra.com

Our senior editor Robin Amlôt recommends you should consider taking independent financial advice before acting on any article. Please contact us for help with your individual circumstances if any assistance is required.