CHOOSING A BROKER

This page covers three basic questions that face new stock market investors:

1. How to trade in shares.

2. How to hold your shares.

3. How to select a stockbroker or a platform.

If you are new to investing, you may find our ShareSoc Investing Basics Episode 8 – ‘How to Buy Shares and Funds’ a useful place to start.

How to trade in shares

Shares are normally now traded either on-line via an internet web site, or over the telephone (although even if you trade on-line you will probably occasionally need to phone your broker with queries). Different stockbrokers offer different services at different prices although on-line trading tends to be cheaper. Usually the price charged for a transaction relates to the value of the order placed, although some brokers offer a low fixed price for deals below a certain value, and others offer discounts for “frequent” traders. Some of the new platforms offer “no fee trades”, e.g. Freetrade, e-toro.

There is usually no charge for simply opening an account, although there may be an initial or annual charge for accounts such as ISAs or Personal Crest accounts (see below). So it’s best to have some idea of the likely volumes of trading you will undertake and what type of account you wish to use before comparing costs.

Stockbrokers typically offer three types of account:

Execution-only accounts. Where you do not get any personal advice and make your own decisions on investments to buy or sell.
Advisory accounts. In this case the ultimate decision is up to you but the broker will give you advice on selecting investments and trading decisions.
Discretionary accounts. In this case the broker manages your portfolio for you.

Execution-only charges are usually less than advisory charges which are less than discretionary charges, which is even more reason to make your own decisions.

Note that in addition to actually owning shares, you can trade on the basis of the share price going up or down by using Contracts For Difference (CFDs) or by using spread betting. These are not something that ShareSoc would recommend except to sophisticated and experienced investors, and they tend to be used for short term trading whereas ShareSoc deals primarily with medium to long term investing rather than speculation.

How to hold your shares

There are three ways you can hold shares in companies – whether or not they are “listed” companies – “listed” meaning traded on a recognised stock exchange such as the London Stock Exchange (LSE):

In “Certificated form” –in essence where you are given a paper share certificate as evidence of title.
In a Personal Crest account. Where your share ownership is recorded in digital form in the Crest system (where almost all holdings of UK listed shares are recorded and which forms the basis of the clearing system). Most if not all firms have stopped offering this service to new customers.
In a Nominee Account where your stockbroker (otherwise known as a nominee operator) has the shares recorded in their name, but records you as the “beneficial owner” of the shares.

In practice if you approach a stockbroker, and don’t specify what you want, they are likely to set up a nominee account for you – indeed if you are wanting a “self-select” ISA account (which is free of capital gains tax and income tax) then legally it unfortunately has to be in the form of a nominee account. But nominee accounts tend to disenfranchise you. You may not receive information automatically about a company’s affairs and may lose the right to vote and attend general meetings of the company. This is a very regrettable state of affairs. Note that your name will not be on the share register of the company (only the nominee operator’s name is) and the company will not therefore recognise you as a shareholder and you will have to rely on your nominee operator to accurately record your share interest (which can cause problems if they go bust, not a rare event, particularly if they use “pooled” nominee accounts where your holdings are pooled with others as is normally the case). There are a few stockbrokers who do provide voting and information rights to those in nominee accounts but most do not – contact ShareSoc for a list of those who are known to do so, which we would recommend if you are opening an ISA account where you have no option but to use a nominee. Within the “advanced topics” of the Investor Academy we explain how to attend and vote at General Meetings if you hold shares in a nominee account, here.

A Personal Crest account ensures your name is on the share register of the company and gives you all the benefits of direct ownership. But because it is an electronic system, it still enables you to trade quickly (e.g. via phone or the internet). It does require a stockbroker to support this system though (they act as the interface to the Crest system for private shareholders), which not all do, and some make a charge for supporting it. So this system tends to be used by more active or sophisticated traders. However we do recommend Personal Crest accounts for those who are active and serious investors. More information on Personal Crest accounts is given in this article published in June 2015: Personal-Crest-Membership.

Share certificates are the original and old fashioned method but again at least you are on the share register of the company. To sell the shares, you will need to post in the paper certificate to your broker so “clearing” times (i.e. how quickly you get the cash) are delayed. It is also easy to accidentally lose the paper certificates, or have them stolen so it is not a recommended method in the modern era for new investments. However, many shareholders hold certificates from past investments. Stockbrokers may charge more for trading in paper certificates because of the extra costs involved.

Note that moving a certificated holding into a digital format (personal crest or nominee account) is known as “dematerialisation” and you can also go the reverse way, although there can be charges for such transfers. There was a move to dematerialise all paper share certificates in recent years into a new “electronic” format which would have had many advantages for shareholders but this was killed off by the Government in 2010 after lobbying by stockbrokers, which is unfortunate. The Flint Digitisation Review is due to report in early 2023 with proposals for dematerialisation and hopefully improvements to the way the nominee system works.

We identify a number of brokers who still support Personal Crest Membership or Certificated share trading on this page. This article published in a ShareSoc Newsletter explains why that might be of interest if you are worried about your stockbroker going bust: Protecting Against Brokers Going Bust

Selecting a stockbroker

The trade body for stockbrokers, called The Personal Investment Management & Financial Advice Association (PIMFA), offers a “find a broker” facility on their web site. This enables you to customise the search based on your local geographic area, how you wish to trade and hold shares and by other criteria. It enables you to quickly identify several brokers that might meet your basic criteria. Go to their web site at https://www.pimfa.co.uk/ to use this facility. Unfortunately ShareSoc cannot recommend specific stockbrokers but as when dealing with any financial institution you may want to research their background and financial stability before using them.

You will find further information about choosing a stockbroker in our dedicated forum, here: https://www.sharesoc.org/forums/forum/choosing-a-stockbroker-or-platform/

Boiler rooms and other share promoters: You should be very careful not to deal with anyone who approaches you out of the blue to sell you shares – cold calling is illegal. All stockbrokers should be registered with the Financial Conduct Authority (FCA) – see https://register.fca.org.uk/ where you can check their register. Do not respond to mailings for free advice or to attend seminars unless you know who you are dealing with. Disreputable firms promoting shares in small, very high risk companies that are very difficult or even impossible to sell once you hold them are quite common, and unbelievably may even be registered with the FCA, so caution is essential.

Obviously joining ShareSoc as a member could help you – just reading our regular newsletters, tweets and blogs will give you investment ideas for example. You can also access our ShareSoc Investing Basics series which will help give you the confidence and skills required to make informed decisions when investing your money. Full members of ShareSoc enjoy additional benefits including access to our exclusive online resources and our private investor discussion forums.

Updated 07 February 2023

Group description:	Our group is interested in sustainable investing and our goal is to identify and evaluate businesses that will thrive through innovation and their transition to a ‘One Planet Economy’. By leveraging the skills of group members, we aim to deeply understand these businesses, particularly focusing on how they develop long-term valuable benefits for their customers. Each year, we plan to evaluate around seven businesses to identify opportunities where our valuation exceeds the market price. A successful outcome is defined as achieving a compound annual growth rate (CAGR), including dividends, of 10% over a decade.
Meeting Type/Venue:	Meetings are in-person in a pub near to Waterloo station in London.
Meeting Frequency/Timing:	Meetings are bi-monthly on a Monday from 10:45am to 4:30pm. Members are expected to also pay for their own lunch which secures the group free use of a private room in the pub. The cost is expected to be £35-40 per person, per meeting, in addition to your SIGnet membership fee.

Group description:	SIGnet Taunton is a new group with around 10 keen members at present, with a range of investment styles and experience. We welcome new members.
Meeting Type/Venue:	In person meetings at a golf club near to the centre of Taunton.
Meeting Frequency/Timing:	We meet on the first Monday of every month at a golf club near to the centre of Taunton, 11am until 3pm with a lunch break.

Group description:	An online group for those who are new to investing, or have only been investing for a few years. Including topics such as: – What is a share or a bond, why and how to buy them. – Comparing funds, unit trusts, Investment trusts and exchange traded funds. – Portfolio management and diversification. – ISAs, pensions, SIPPS and how to save tax. – How terms such as PE ratio and dividend yield are used to value a share. – How to use technical analysis or charting.
Meeting Type/Venue:	Online using Zoom.
Meeting Frequency/Timing:	Meetings are usually held on the last Monday of the month at 7:00pm.

Group description:	An online group for those who already have some experience in investing. Covering topics such as finding companies to invest in, financial statements and ratios, valuation / margin of safety, analysis of companies and investment trusts and exchange traded funds.
Meeting Type/Venue:	Online using Zoom.
Meeting Frequency/Timing:	Meetings are usually held on the last Wednesday of the month at 7:00pm.

Group description:	The Equity Income Group welcomes investors of all levels of experience, from beginners to advanced. The focus of meetings is on dividend paying Investment Trusts, though there is also discussion around individual shares.
Meeting Type/Venue:	Meetings are held online.
Meeting Frequency/Timing:	Meetings are held every 6 weeks on a weekday between 7 and 8:30pm.

Group description:	A welcoming group open to all types of investors. Typical meeting content is to have a deep dive presentation on a topic selected by the participants and a session on buy/ sell/ key lessons learnt last month.
Meeting Type/Venue:	In person at a friendly pub close to Piccadilly Circus
Meeting Frequency/Timing:	Monthly during the evening on the first Wednesday of the month.

Group description:	All levels of experience welcome. A typical meeting agenda includes: – Macro Environment – Trades: Members review existing positions and identify securities with promising TA entry patterns or setups and with suitable risk/reward. Any security, long, short, futures, options may be considered. The convener takes actual positions in trades and maintains his own detailed ledger, accurately measuring performance of individual securities and cumulative activity. Members are notified by e-mail prior to the entries or exits that are decided upon. Following each meeting an updated copy of the ledger is circulated together with the next meeting agenda. Members may wish to maintain similar ledgers of their own but there is no obligation to do so. – Technical Analysis: Techniques and systems used in trades. Members can request discussion of particular aspects of TA.
Meeting Type/Venue:	Online via Zoom
Meeting Frequency/Timing:	The first Tuesday of every month from 7 to 9pm

Group description:	Our group covers a wide spectrum of mainly stock market investing and trading from equities – which include shares, ETF’s Investment and Unit Trusts. We normally rotate the meeting chairperson (responsible for creating, with member’s help, suitable agendas) and a meeting presenter (members take it in turns to provide a 15 to 45 minute presentation on a subject of their choice). Various investing topics of interest are regularly discussed such as software, brokers, investing categories and markets and any related topics of interest.
Meeting Type/Venue:	Meetings will be returning to in-person in a private room at a West London golf club, close to an underground station. In the meantime monthly video calls and an in-between meeting email group will continue.
Meeting Frequency/Timing:	In-person meetings will be held on the second Wednesday of each month in the afternoons, following a golf club one course lunch.