Money: Stocking up on good advice
Sunday 16 November 1997
Private client stockbrokers are still the most favoured middleman when it comes to share dealing. And there is now a tailoring of service to suit the individual client.
Traditional private client brokers will still advise clients, offer a dealing service and, in many cases, sophisticated systems that will keep a check on a client's portfolio.
But for those who just want to phone through a buy or sell order, without the need for any advice or other service, there are now execution-only brokers who offer a bargain basement service involving no advice. They range from high street outlets of the banks and building societies to specialists who only operate by telephone or post. Small parcels of shares can be bought or sold for as little as pounds 10. Sharelink, one of the largest of the specialist execution-only brokers, charges a maximum of pounds 50 for deals worth up to pounds 75,000.
These services are mainly for investors who know what they are doing, perhaps because they have privatisation shares to sell or who are happy to manage their own portfolios. They are not for those who need advice.
If you want advice or skilled portfolio management, then you should use a traditional broker.
Firstly, the broker will carry out a fact-find, asking you a number of questions that will ascertain your individual circumstance and specific requirements. Quite painless, the answers will determine if capital growth or income is the main need, how long are the investments to be managed before you will want to cash them in, and whether you object to any investment sectors.
Most traditional brokers offer advisory and discretionary portfolio management services. The former will give you a degree of portfolio management that allows you to make the decisions after receiving the broker's professional advice. For many investors, this is a perfectly satisfactory halfway house between execution-only and full discretionary service. With the latter, the broker can act on a client's behalf. This might worry some people, but it can be important in times of rapidly moving markets.
Using a discretionary service should not mean losing touch with your investments. Your broker will normally send you a contract note for each deal, provide regular valuations of your portfolio and carry out reviews with you at agreed intervals.
Of course, this kind of service comes at a price usually paid for by fees, commissions or a mixture of both. Typical costs are those of Greig Middleton, one of the largest private client brokers. It makes a 3 per cent initial charge with a 1.25 per cent annual fee for the first pounds 100,000 under management, falling to 1 per cent for the next pounds 400,000. There is also an additional 1.25 per cent for individual transactions, plus VAT and 0.5 per cent stamp duty on purchases.
It may also be worth asking your broker about other services. Many will be able to advise you on the whole range of financial products including pensions and life assurance. The costs may seem higher than those charged by fund managers such as unit trust groups. But the private client broker should offer a bespoke service tailored to the individual.
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