This is a question I get asked quite a lot. Unfortunately there’s no easy answer because it depends on how you define “best”.
Is the best UK stockbroker the cheapest one or the one with the simplest website? Is it the one where a nice broker will help you over the phone or where their execution-only platform has the tightest “spreads”?
Knowing what makes one stockbroker different from another
So stockbrokers have lots of different features and your first job is to know what’s important to you and what isn’t. Here are some of the main features that spring to mind:
Perhaps the most obvious feature and the one that investors tend to focus on is trading costs. Every time you trade you have to pay the broker a fee and so the relative importance of this will depend on how often you trade.
These fees fall into two main camps:
- Fixed fee, where you pay a fixed amount, typically in the region of £10, for each buy or sell trade and
- Percentage fee, where you pay a percentage of the size of the trade, typically between 0.5% and 1% for each buy or sell.
Which is more attractive will depend on the size of your trades, but if you’re picking individual stocks then the fixed fee is very likely to work out cheaper.
Some brokers also offer reduced fees for things like frequent trading and regular investing. There are also fees associated with dividend reinvestment.
In the old days few brokers charted an ongoing fee just because you have an account with them, but that has changed recently and most now apply platform or account management charges.
These range from zero to £20 per quarter or more, although some brokers will give you free trades up to the value of the platform fee.
For example, if the platform fee was £20 per quarter and you carried out one trade per month as I do, then the first two trades (at £10 each) are free and the third one in the quarter isn’t, which effectively removes the platform fee.
Again, how much you care about platform fees will depend on the size of your funds. If you have more than £100,000 to invest with a broker then I doubt that the choice between a quarterly fee of £10 or £20 would be the deciding factor between one stockbroker and another.
Pretty much all of the mainstream stockbrokers will provide execution-only trading online or over the telephone. However, many of them offer special features which you may or may not be interested in. These include things like:
- Branches, where you can walk in and discuss investing face to face with a real live human being
- Regular investment plans, where money is pulled automatically from your bank account each month and used to buy predefined investments, effectively automating the “pound cost averaging” approach
- Advisory services, where you can call your stock broker and ask about a specific investment you’ve been thinking about, or about your overall portfolio or all manner of other things
- Discretionary services, where you can leave the day to day management of the portfolio up to your broker
- International dealing, where you can convert funds into another currency and trade shares on a foreign stock exchange
- Special trading options, such as stop losses or limit orders.
Active share ownership
Another special feature is the ability to have a say in the future of the companies you own.
As a shareholder you own the company and you’re entitled to vote on various board resolutions and to ask questions at the annual general meeting. You’ll also receive information such as annual and interim reports either by email or post, which I think is really the minimum that any broker should provide for shareholders (by email at the very least).
But very few brokers offer the personal CREST accounts which you usually need to be a true shareholder with voting rights, rather than a nominee holder who has none.
However, some brokers do allow nominee account holders to receive company reports and even to attend the AGM and vote (Sharesoc lists Brewin Dolphin, Killik & Co., Natwest Stockbrokers, TD Waterhouse and The Share Centre as brokers that enable this, but check the details first).
If you would like to ask the board questions on specific issues at the AGM but won’t be able to attend, you can give your proxy vote for that AGM to organisations such as ShareAction who may be able to send someone on your behalf.
Finding the best UK stockbroker for you
This is the difficult bit. With so many brokers and so many features it’s likely that your decision on a stockbroker will entail a degree of “satisficing”, where you settle on a broker that appears to be a good match, given the complexity of the question at hand.
The best comparison of UK stockbrokers I’ve seen is on the Investors Chronicle website. There is a stockbroker comparison tool and a downloadable PDF which summaries the key features of almost 30 mainstream stockbrokers. They’re not all on there, but it’s a very representative bunch.
If there are other major brokers that you know of that aren’t on the list then the that summary document will give you a good idea of what features to look for and what questions to ask.
While price is important, it isn’t everything. There may be many other features that are important to you that you may not have even thought about.
So if you’re looking for a new stockbroker then I suggest you have a look through that Investors Chronicle PDF, draw up a shortlist of brokers that meet your criteria, visit their website and perhaps even open a “test” account so that you can try out what they have to offer.
If anything seems confusing, ring them up and see how good their customer service is.
And if, after a while, you decide that you don’t like them, it’s easy to transfer from one broker to another these days, so finding the best stockbroker for your personal situation shouldn’t be an impossible task.
The IC site is actually out of date
Barclays are by far the best broker all round imo
Trading at 11.95 @ minimum level
John Kingham says
Hi MV, thanks for pointing out Barclays.
I did see that the IC list was out of date here and there, but overall I still think it’s an excellent starting point for finding out what sort of options the different brokers have, what services are available, etc. Of course the next best step is to go to the broker sites, look around, email/call them up and so on.
Yes – I’m a long time subscriber and it’s hard to catch IC out – Good article that in fact made me switch to them!
I suppose part of the problem is in the admin and switching costs – choosing a broker is still a big decision and a hassle to back track on.
I think as share ownership widens we’ll see cost driven down further – and incentives for moving as retail bank accounts have demonstrated