Execution-only brokers do just what the title implies: they only carry out your buying and selling. If you want advice on which shares to buy and sell, you'll have to go elsewhere. Many investors, however, know exactly what they want to trade and don't want to pay a stockbroker for unwanted advice.
A big attraction of execution-only stockbroking is that it is easy. It is available in many branches of the high-street banks. Most stockbrokers offer postal dealing services. Or you can trade from home via the phone.
To buy and sell by phone, you need to set up an account.Richard Hunter, head of dealing at NatWest Stockbrokers, says: "With most brokers you can set up an account over the telephone very quickly. You can go from having no relationship with a broker to being able to deal within half an hour."
Once your account is up and running, you can trade as often as you wish; all you have to do is phone your broker and tell him to carry out the transaction. The broker will tell you the price at which the shares are trading and will then send you a contract note to confirm the details.
You can even deal outside the market's official opening hours. Many brokers will accept deals by phone at any hour and then trade when the market next opens. This, says Mr Hunter, is "the Martini effect - dealing any time, any place, anywhere".
Execution-only brokers are also cheap. Birmingham-based ShareLink, the UK's largest execution-only broker, charges pounds 10 to buy pounds 1,000 of shares. A traditional advice-based broker might charge pounds 25 or more. At CaterDeal, owned by Abbey National, you would also pay pounds 10 for the trade; at Sharemarket, it would cost pounds 9.
How do you hold your shares? Basically, you have two choices: either you opt to be sent paper share certificates, or you hold your shares through the broker's nominee company.
Both approaches have disadvantages. The trouble with holding certificates is that when you sell your shares, you have to send them to your broker and complete some tedious paperwork. Investors who use nominee companies may lose some shareholders' rights, such as receiving a company's annual report and accounts. But anyone who deals regularly - once a month or more - will probably find it easier to use the nominee option. For occasional investors, paper certificates should be satisfactory.
Other than this, phone broking is dilemma free - you'll probably never even meet your broker. Guy Knight, ShareLink's marketing director, says: "There's no reason for customers to come to Birmingham to see us. Some do as they like face-to-face contact, but it isn't necessary."
One danger with a phone-based dealing service is that you won't be able to get through on the phone. This was an issue during the summer when many investors were trying to sell building society windfall shares - some were held in queues for half an hour or more. Hopefully such problems have been solved. ShareLink was criticised this year by customers who could not get through, but it has installed a new call centre with much greater capacity.
Alternatively, you could deal over the Internet. Three brokers now offer on-line dealing, though to get access to ShareLink, City Deal and Stocktrade you will also have to sign on for the services offered by either ESI or Infotrade. The ESI package is entirely Internet-based, whereas with Infotrade you install software on your computer and then log on to its website to trade. Dealing on-line is similar to trading by phone. Once an account is opened with a broker, you can deal whenever you like by keying in your trades. Your broker will then send you a contract note in the post. Infotrade can update information on your portfolio as share prices change, while ESI has a database of news stories on leading stocks.
Because Internet-based brokers do not have to pay operators, dealing on-line is often cheaper than a phone service. Infotrade charges pounds 14.70 per month for its services, which include Internet access. ESI's basic service is free; more comprehensive facilities cost pounds 5 per month and the deluxe service pounds 20 per month. To get the best deal, shop around between the brokers on the Infotrade and ESI sites.
q Contacts: City Deal, 01708 742288; NatWest Stockbrokers, 0171 895 5955; ShareLink, 0121 200 2242; Sharemarket, 0161 237 9443; Stocktrade, 0131 529 0101; ESI, www.esi.co.uk; Infotrade, www.infotrade.co.ukReuse content