Investing For Growth: Power passes to the private shareholder

THE PRIVATISATIONS of the 1980s, including British Telecom and British Gas, allowed hundreds of thousands of private investors to buy shares for the first time - and make tidy profits. The trend has continued with building societies and insurance companies converting to plc status and rewarding their members with free shares.

Some of the best-known names in finance, including Alliance and Leicester, the Halifax and Norwich Union, have floated on the stock market and produced "windfall" shares for their customers. Savers with the Abbey National, the first large society to convert, received 100 free shares. They are now worth over pounds 11 each.

Some 12 million adults in the UK now own shares and a further 4 million invest in the stock market through collective funds such as unit trust PEPs. The boom in stock market investment has created more competition for low-cost, simple stockbroking services. You can buy and sell shares via the phone, the post, over the internet, or even from computer screens in bank branches.

Like most financial professionals, traditional stockbrokers offer advice. They may go further and, as "discretionary" brokers, take on the full management of a client's portfolio. But not everyone wants to pay for advice. Wider share ownership has increased the market for execution- only broking services, which simply carry out orders to buy and sell shares.

Buying equities direct is cheaper than using a unit trust, and gives investors the chance to beat the fund managers at their own game.

Using a low-cost broking service means there is more money left over to put into shares. This in turn makes the stock market more attractive to individual investors, which cuts costs further. In the US, broking fees have fallen dramatically, especially with the introduction of internet- based share dealing. US execution-only brokers now charge as little as $7 per trade (just over pounds 4).

"We may not get the same level of prices as in the US," suggests Richard Hunter, head of dealing services at NatWest Stockbrokers. "But with more and more services, the pressure on commissions will be downwards. There may be two sorts of brokers: discounters and deep discounters."

According to Mr Hunter, typical commission rates for execution-only services have already fallen from 1.65 per cent of the value of shares to around 1 per cent. NatWest, for example, charges 1 per cent for deals up to pounds 4,000 on its phone-based, Brokerline service, with a pounds 20 minimum. NatWest's branch-based dealing service charges 1.5 per cent on deals up to pounds 10,000, with a pounds 20 minimum fee. NatWest also offers an advice phone line for execution- only clients at pounds 75 a year. Internet broker The Share Centre charges 1 per cent for trades in the FT-SE 100, with a pounds 2.50 minimum.

Most private investors in the UK deal over the phone but the internet offers the possibility of even cheaper trading, and almost real-time deals. Broker Charles Schwab operates a system that lets its clients access deals on the London Stock Exchange's Sets computer via the internet. Trades and prices are confirmed in seconds.

Cheap and simple trading is also tempting investors to look more actively at their portfolios, says Angela Knight, chief executive of APCIMS, the stockbrokers' association. "Nearly a third of the adult population holds shares. If it is cheap and easy to do something with them, there is less temptation to leave the share certificate behind the clock on the mantelpiece."

The number of bargains struck by private investors on the London Stock Exchange is growing, especially among buyers. This is significant: it shows that activity is not just investors offloading their windfalls; they are buying new shares to replace them and building portfolios.

Investors who want to choose their own shares have access to an increasing amount of material to help them. Company reports are an obvious first step, as are brokers' newsletters. It can often pay to track a share for a period before buying, and to check the company's performance and share price over the past few years. Internet sites such as Interactive Investor and Motley Fool (see page 24) are a good starting point. Proshare publishes a useful guide to reading reports and other company information.

As well as commissions and stamp duty on buying shares, brokers may charge registration or account fees, especially if shares are held in a nominee account.

Investors should also look at whether the broker has plans to trade on the internet, how it deals with out-of-hours dealing, and the time it takes to complete a trade. Frequent traders who want to ride movements in the markets should look at internet systems such as Charles Schwab's and one currently being developed by Barclays Stockbrokers.

Contacts: NatWest Stockbrokers, 0345 224488; Charles Schwab Europe, http://www. schwab-worldwide.com/europe; APCIMS, 0171-247 7080, www.apcims.org; Proshare, 0171-394 5200, www.pro- share.org.uk; The Share Centre, www.share.co.uk

share clubs

Joining a share club is an easy way to select and buy shares. Clubs are made up of anything from three to 20 people who pool cash each month and make joint decisions on which shares to buy. A club meeting is also a social occasion and you don't have to know anything about the stock market to join. Most clubs operate on the "buy what you know" basis by drawing on members' interests and common sense.

If you are interested in setting up a club with friends or colleagues, Proshare has an investment manual telling you all you need to know. It is available to Independent on Sunday readers for pounds 20 (usual price pounds 25) including postage: 0171-394 5200.

Start your day with The Independent, sign up for daily news emails
ebooks
ebooksA special investigation by Andy McSmith
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Claims Administrator

£16000 - £18000 per annum: Recruitment Genius: A position has arisen within th...

Ashdown Group: Development Manager - Rickmansworth - £55k +15% bonus

£50000 - £63000 per annum + excellent benefits : Ashdown Group: IT Manager / D...

Recruitment Genius: Security Officer

£16500 per annum: Recruitment Genius: Applicants must hold a valid SIA Door Su...

Ashdown Group: Business Analyst - City, London

£50000 per annum: Ashdown Group: Business Analyst - Financial Services - The C...

Day In a Page

The saffron censorship that governs India: Why national pride and religious sentiment trump freedom of expression

The saffron censorship that governs India

Zareer Masani reveals why national pride and religious sentiment trump freedom of expression
Prince Charles' 'black spider' letters to be published 'within weeks'

Prince Charles' 'black spider' letters to be published 'within weeks'

Supreme Court rules Dominic Grieve's ministerial veto was invalid
Distressed Zayn Malik fans are cutting themselves - how did fandom get so dark?

How did fandom get so dark?

Grief over Zayn Malik's exit from One Direction seemed amusing until stories of mass 'cutting' emerged. Experts tell Gillian Orr the distress is real, and the girls need support
The galaxy collisions that shed light on unseen parallel Universe

The cosmic collisions that have shed light on unseen parallel Universe

Dark matter study gives scientists insight into mystery of space
The Swedes are adding a gender-neutral pronoun to their dictionary

Swedes introduce gender-neutral pronoun

Why, asks Simon Usborne, must English still struggle awkwardly with the likes of 's/he' and 'they'?
Disney's mega money-making formula: 'Human' remakes of cartoon classics are part of a lucrative, long-term creative plan

Disney's mega money-making formula

'Human' remakes of cartoon classics are part of a lucrative, long-term creative plan
Lobster has gone mainstream with supermarket bargains for £10 or less - but is it any good?

Lobster has gone mainstream

Anthea Gerrie, raised on meaty specimens from the waters around Maine, reveals how to cook up an affordable feast
Easter 2015: 14 best decorations

14 best Easter decorations

Get into the Easter spirit with our pick of accessories, ornaments and tableware
Paul Scholes column: Gareth Bale would be a perfect fit at Manchester United and could turn them into serious title contenders next season

Paul Scholes column

Gareth Bale would be a perfect fit at Manchester United and could turn them into serious title contenders next season
Inside the Kansas greenhouses where Monsanto is 'playing God' with the future of the planet

The future of GM

The greenhouses where Monsanto 'plays God' with the future of the planet
Britain's mild winters could be numbered: why global warming is leaving UK chillier

Britain's mild winters could be numbered

Gulf Stream is slowing down faster than ever, scientists say
Government gives £250,000 to Independent appeal

Government gives £250,000 to Independent appeal

Donation brings total raised by Homeless Veterans campaign to at least £1.25m
Oh dear, the most borrowed book at Bank of England library doesn't inspire confidence

The most borrowed book at Bank of England library? Oh dear

The book's fifth edition is used for Edexcel exams
Cowslips vs honeysuckle: The hunt for the UK’s favourite wildflower

Cowslips vs honeysuckle

It's the hunt for UK’s favourite wildflower
Child abuse scandal: Did a botched blackmail attempt by South African intelligence help Cyril Smith escape justice?

Did a botched blackmail attempt help Cyril Smith escape justice?

A fresh twist reveals the Liberal MP was targeted by the notorious South African intelligence agency Boss