Listen up! I have a big announcement.
I started with Agora Financial this summer as editor of their small-cap newsletter franchise. And ever since then I’ve been busy relaunching, developing and rebooting small cap newsletters.
I helped relaunch Breakthrough Biotech Alert in July and launched my own newsletter, The Penny Share Letter, in August.
And now it’s time to give Penny Sleuth a much-needed revamp.
The team and I have been working hard behind the scenes for the last two months on the new email.
Introducing Risk and Reward.
Risk and Reward has a clear mission: bring you the most exciting investment opportunities on the market.
That might mean a tiny company on the verge of great things, or an impressive new technology, or a smart strategy.
But basically – if it can make you some money or make you a better investor, you’ll read about it in Risk and Reward.
I’m relaunching the newsletter because I can’t find anything out there quite like it. I think most writing about the markets is either very dense, or it doesn’t give useful investment ideas, or it’s boring!
The financial press make things much more complicated than they need to be. So I’ll keep Risk and Reward is simple, clear, and free of annoying jargon.
And if I find something you need to read, I’ll make sure and pass you on the link.
I’ve prepared a series of eight emails to “set out my stall”. You’ll start getting them on Monday week.
For now though, I need you to do one thing. It takes less than a minute. I need you to “whitelist” the new Risk and Reward email address, so your computer doesn’t mistake it for spam.
You’ll find instructions for how to whitelist an email address at this link. And the new email address is email@example.com.
That’s all for now. I’ll be prodding you again next week to remind you to whitelist the email. So apologies in advance for that.
On with today’s issue!
How to pick a broker
I got an email from a subscriber during the month.
“I’ve been with [REDACTED] for years and I am unhappy with their service. Could you recommend to me a broker suitable for my needs?”
Happy to help Charles! The first think to ask is exactly what services you need from your broker.
You can choose between three different types of service from a broker. The cheapest option is where a broker just buys or sells shares, acting on your instructions. The more expensive options are where a broker also starts to give you investment advice, or completely handles your investments for you. The three categories are:
- Execution-only brokers
With execution-only brokers, all you do is contact a broker and get him to either buy or sell the shares of your choice. The broker will not give any advice on the shares. He is simply there to execute your buy/sell instructions. Although even these brokers offer investment research and information like share price charts on their websites.
- Advisory brokers
For a fee, you can talk to advisory brokers. They provide a service for those who would like to control a portfolio of shares but are not confident enough to go it alone. Most such brokers ask you to come in for an interview or complete some documents to find out what you are looking for, your income and commitments and your attitude to risk. An adviser can offer two services. Either he will have details of all your investments and give advice on them as a whole, or he will give ad hoc advice on buying and selling the individual shares that you suggest.
- Discretionary brokers
This is the most expensive of the three services and is typically used by very wealthy clients. The discretionary broker buys, sells, advises on and manages your share investments completely. He will be in close contact, keeping you informed as to the current value of your investments and what he is buying and selling, but will have full authority to act on your behalf. As with an advisory broker, you will have to undertake an initial interview to give your broker a clear idea of what he should be doing on your behalf.
Whichever broker you decide to use, you will be sent a Client Agreement Letter. This outlines the services you will be offered and the terms under which the broker will work for you.
You will then have to deposit some money into your account – then your broker is ready to start buying and selling shares for you.
Some accounts require a minimum initial deposit. In addition, you should ask about any costs that may not be prominently displayed on sales brochures, such as annual fees, monthly subscription charges and account inactivity fees.
What is the difference between holding share certificates myself, and having a nominee account?
In days gone by you always received a share certificate each time you bought a share. This created a huge amount of paperwork in the City and required shareholders to keep these certificates safely. To ease this administrative burden, most brokers now register your share purchase using a Nominee company that it owns and operates. The shares are officially owned by this Nominee company. However the records of the Nominee company will attribute these shares to you. This saves you money because you do not have to pay for registration costs. It is also convenient because you don’t have to worry about losing your share certificates.
However, there is a drawback. If you hold shares via a Nominee Account it does mean that you won’t appear on the register of shareholders. This means that the company in which you are a shareholder cannot contact you directly and this may mean that you cannot attend shareholder meetings or receive the occasional product discounts or other minor perks that are offered to shareholders. Some brokers will arrange for you to get these benefits; so shop around if this is an important factor for you.
Which type of broker account is right for me?
If you are just beginning to invest in shares, I recommend you open a nominee account with a low-cost, execution-only broker. With a nominee account you don’t have to worry about share certificates, as all your shares are held by the broker’s nominee company. And with an execution-only broker you are not paying for advice and therefore the cost of dealing is kept to a minimum. Bear in mind, though, that the cost per trade is only one of the factors that should influence your choice.
If you are going to trade online, check that the broker has back-up services such as telephone and telephone touch-tone trading for when your internet connection is not working. If you are at all unsure about investing you should always seek independent financial advice. You must understand and be comfortable with the risks involved.
So, after all that, which broker do I think are worth your time? Well, you won’t go far wrong with any of the following. They offer a full service and their fees / spreads are low / narrow.
Interactive Investor Tel: 0845 200 3637 Website: http://www.iii.co.uk
TD Direct Investing Tel: 0845 607 6002 Website: http://www.tddirectinvesting.co.uk/
Barclays Stockbrokers Tel: 0800 279 6551 Website: http://www.barclaysstockbrokers.co.uk
Halifax Share Dealing Tel: 0845 722 5525 Website: http://www.halifax.co.uk/sharedealing/
Hargreaves Lansdown Tel: 0117 980 9950 Website: http://www.hl.co.uk/