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-
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:
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.
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 –
- 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 –
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-
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 –
Obviously joining ShareSoc as a member could help you –
Updated 07 February 2023