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Invest in a stockbroker to make your money work
Guiding through the money maze is an onerous responsibility but the role of the stockbroker is important. Perhaps because their skills are too little understood, it's surprising how many do not seek their sage advice.
Unlike law and banking, the need for a stockbroker or investment manager may not appear as obvious. Yet to achieve your personal and family security, good financial planning is key. Few can achieve this independently.
The research required, overview of finances, detailed recommendations and continuous guidance over the years as the goals change are all part of the job description of a stockbroker.
Many like that person to become "a familiar voice on the phone, someone to guide your future prosperity and that of your family. Always active but quietly reassuring", says Paul Killik, co-founder in 1989 of private client stockbrokers Killik & Co.
Consider which route would be best for your finances. The range of services offered by investment managers and stockbrokers is basically threefold:
n Advisory: the investor receives recommendations and is consulted prior to any purchases or sales being executed.
n Discretionary or managed: all decisions are left to the stockbroker who will deal, manage and act as custodian.
n Execution-only: the investor trades without advice with the broker simply executing the client's instructions.
If the investor takes either of the first two ways, usually an annual fee is paid based on the value of the portfolio. With execution-only, generally a charge is levied per trade, which is reduced for frequent users of the service.
It's not necessary to place all eggs in one basket. Some investors split their assets, such as 80 per cent discretionary and 20 per cent advisory, so that they can have some personal involvement but most of their investments are professionally managed.
With either of the first two routes, discuss your attitude to risk and how the stockbroker or investment manager can diversify appropriately. When all assets are taken into account, do not overlook such important areas as where pensions are invested. As a generalisation, far too much money is tied up in the UK and therefore subject to one island economy although mitigated by our trading success.
In such a review, discuss your monetary needs so that the professional knows how far ahead funds can be invested. The strategy then planned should reflect not only your time horizons but also your risk profile.
To take into account your full financial picture, opt for a qualified Chartered Financial Planner, such as Harrogate based Brook-Dobson Brear. As wealth management consultants, they can guide on the relative risks and recommend the right channels to adopt.
Among the areas to consider are long-term holdings where significant capital gains have been achieved which you may prefer not to be forced to sell in order to match a particular geographical or themed portfolio.
If you are prepared to accept higher risk on a proportion of your money, the broker can adopt a more aggressive stance designed to maximise opportunities as they arise.
Some stockbrokers – such as US owned Edward Jones – have an intensely traditional approach and will not, for instance, even recommend any shares on the Alternative Investment Market (known as AIM).
If part or all of your requirements is to maximise income, rather than growth, ask what yields the firm is currently securing. They may construct their own fund or follow a well-respected public one like Invesco Perpetual High Income or Newton Income.
One of the most useful services is to have an annual statement which shows the gross dividend income and tax credit position in a consolidated form which can be sent on to your accountant or will help completion of your annual tax return. In order for a stockbroker to act with speed, accept that trades are carried out on a nominee basis and without paper. If shares are held in a certificated form, the broker should hold them on your behalf.
It should also be possible to have advice as to which investments qualify for inclusion in an ISA and/or a self-invested personal pension (SIPP).
Execution-only brokers often quote two rates: one for simple single trades and one for frequent traders. Leeds-based T.D. Waterhouse charge 12.50 and, when 10 or more trades are made online per quarter, 9.95.
The Share Centre has several execution-only rates, starting at one per cent or 7.50 minimum or as low as 2.50 if you trade during one of their batch dealing sessions which are at three times a day. For frequent users, 20 plus VAT is raised quarterly with deals fixed at 7.50 each. It also offers a regular investing plan – a great way to reduce volatility and invest out of income – costing just 0.5 per cent (1 minimum).
Ask all brokers if there are different commission rates for trading on non-UK markets, what access is there to managed funds and whether any initial fee will be charged. Since an ISA is such a convenient vehicle to save tax, check if any administration fee is levied for providing such an arrangement.
If taking either the advisory or execution-only routes, ask what research is available and how comparison information can be supplied.
Some brokers offer facilities for the next generation. This could be a Child Trust Fund account which can accept to the current annual limit of 1,200. The benefit is that the money can probably be invested in equities or a fund where growth is far more likely over the 18 years of such a CTF than the cash-based building society alternatives.
Charles Stanley, which opened a Leeds office in the last two years, have been stockbrokers since 1852. Jonathan Baker, in addition to the range expected, can provide their 'wealth management service'. This provides the opportunity to have investments managed on a discretionary basis in collectives, rather than directly in stocks and shares.
The firm can also provide annuity advice, inheritance tax planning and long-term healthcare planning. Fees for advisory and discretionary management start at 400 annually.
Brewin Dolphin, again represented by a key Leeds office, is recognised for having one of the leading teams of research analysts. Such work helps to identify not only trends but the best companies and funds. This is important when examining a portfolio by sector. The firm looks after over 21bn.
Among recent assignments, Martin Payne has examined how a couple might fund private education.
Redmayne-Bentley, formed in 1965, is a major stockbroker with five offices in Yorkshire: Beverley, Harrogate, Ilkley, Leeds and York. Leeds-based Rensburg Sheppards now has 11 regional offices and is particularly noted for its discretionary service.
Rise of the investment club
The Shipley based Five Rise Investment Club started eight years ago. The members – who now number 20 – were originally all from a Rotary Club.
Each contributes at least 25 monthly but higher amounts and lump sums are accepted. Richard Moore, the club's secretary, says they initially chose a traditional stockbroker but found the "commission disproportionate" for their relatively small purchases, which were typically in 500 amounts.
In January 2002 the club switched to The Share Centre as it was "competitive on cost".
They have found it to be both excellent on administration and very supportive for research through the website which Richard describes as "simple, easy and straightforward."
Club members often select a potential share and use The Share Centre's website to see its price movements and any news over a month or more before deciding whether to purchase.
The club has 48 different securities of which a fifth are on AIM.
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