What is a stockbroker?

A stockbroker is person who is licensed to trade in shares. They also have direct access to the sharemarket and can act as your agent in share transactions. For this service they charge a fee. Stockbrokers can also offer additional services such as:

advice on shares, debentures, government bonds and listed property trusts

investment advice on a wide range of non-listed investment options (cash management trusts, property and equity trusts)

planning, implementing and monitoring of your investment portfolio

research on national and international trends to help maximise your returns and minimise risk.

What kind of stockbroker do I want?

There are two types of stockbroker - a full service broker (advisory) and a discount broker (non-advisory).

A full-service broker will provide you with advice on which stocks to trade. They can often operate as financial planners and help with other aspects of your investment portfolio. Because they offer advice, a full service broker usually charge more than discount brokers. Go to Moneymanger's online brokers fees and services comparison to get a general idea on the charges.

A discount broker will execute your trades but will not provide you with any advice. As a result brokerage charges are low. In many cases less than $20 for each transaction depending on the number of shares or amount you are buying. Discount brokers generally operate via the telephone, Internet or both. Examples of discount brokers include: E*Trade, Charles Schwab Australia and Commonwealth Securities.

Normally brokers only handle minimum amounts, such as $1000. Shares are also bought and sold in marketable parcels. For example, while you can place an order for 1000 shares, it is unlikely you will be able to trade 1050.

The type of broker you choose will depend on your own confidence in trading shares. Often investors who know exactly what they want to buy, will go to a discount broker to enact the trade but they will use a full-service one if they are interested in shares of a company they are unsure about.

Where do I find a broker?

Choosing a stockbroker is just as important as choosing any professional that acts on your behalf. There are a number of places you can go to when researching the most appropriate one for you. Following up recommendations from friends is very common as is choosing one that has a good reputation in the market. The Australian Stock Exchange has a Broker Referral Service provides a list of brokers, both full service and discount.

Unless you are dealing with an Internet broker, it makes sense to choose one who is based close to you. There's no point having a broker in Perth when you live in Sydney - the phone costs wouldn’t justify it and there is a time difference. When choosing a broker make sure you shop around and understand just what service your broker will provide.

What to ask a discount broker

• How much do you charge to buy and sell shares?
• Can I deal with you over the telephone and Internet?
• Do you have a monthly subscription fee?
• Do you have frequent trader discounts? (For example, do you charge lower fees if I trade more than 10 times a month?)
• Do you offer any value added services, such as company research, price alerts, and dynamic market data?
• Do I need to set up a special cash management account to conduct trades?
• How do you place buy and sell orders?

What to ask a full service broker

• What's your investment style? Check whether it matches yours.
• How do you charge for your services?
• What are your firm's research capabilities?
• How do you communicate with clients? For example, do clients get sent newsletters? Are they called on a regular basis?
• Do you have access to floats?
• How often will you review my portfolio?