Before you open an account with a stockbroker, the first question you need to ask is whether you want to go for a full broker service or execution only, which is usually supported by an online facility. Your decision will be driven by how much you want to invest and what you are prepared to pay for advice.
Full service brokerage is more expensive and may have a minimum monthly service fee. For this service you are able to receive advice from the brokerage on your investment decisions. But these professionals’ time is expensive and they charge accordingly.
Many brokerages offer online trading facilities, which allow you to place your own trades as well as offering research, technical analysis and portfolio updates. Because you are not using the time of a professional, these services are far more cost effective with minimum brokerage per trade varying between R90 and R100 compared to R150 or more for full service brokerage. Some stockbrokers may charge a higher monthly service fee for full broking services as opposed to online trading accounts.
According to Pieter Eksteen, portfolio manager of PSG Konsult, online trading has boomed over the past two to three years and offers the opportunity to get involved directly in the JSE by allowing clients to execute their own instructions. As a new investor, you could set up your own watch list, place your own orders, stop orders and do your own research, all with the click of a button. Depending on the broker that you are registered with, and for a small fee, you can have access to all research, graphs, JSE announcements and corporate actions information.
But, says Eksteen, dealing via a broker also has its advantages, especially if you have never had any experience in the market and you have no idea what to do with your money. Through a broker you have access to the broker’s research and information. Instead of just relying on your own research, you now have access to a professional financial adviser to help you make the right decisions.
What can you expect from the services?
Richard Seddon, head of Standard Bank Online, highlights the offerings of an online service as opposed to a full brokerage service:
Standard Bank Online broking provides:
- education: face-to-face classes as well as online;
- all the information that a full-service broker would use to make a decision, such as analyst research, company profiles, consensus forecasts, live market data and charting tools;
- a few tools that some brokers may not have such as stop losses, e-mail and SMS price alerts, confirmation of trades via e-mail and SMS, online contact notes and share filters;
- single stock futures and warrants trading that are better done online owing to their volatile nature. These are a trader’s instrument and getting information about these instruments over the phone is not easy;
- discounted brokerage fees (for example 0,7% with an R89 minimum);
- no management fees;
- no minimum investment amount;
- 24/7 access; and
- the anonymity of making your own decisions.
Full-service broking provides:
- a dedicated adviser who works with the client to decide on what to invest in;
- a personalised service;
- a phone-based relationship, although face-to-face is also offered; and
- availability during market hours.
However:
- a minimum portfolio value can be as high as R1-million;
- higher brokerage fees (for example, 1,5% with a R135 minimum);
- usually charge a management fee based on the size of the portfolio; and
- make their decisions on the same data that is available online.
The benefits of the online route
When selecting an online stockbroker, like all services, it comes down to price, quality and knowing that you are receiving value for money, says Jan van Staden, CEO of Barnard Jacobs Mellet Private Client Services.
With online stockbroking services, Van Staden says that clients tend to believe that each company offering is exactly the same as another and therefore only focus on the costs.
What is important is to understand what your monthly fee includes. For some online brokers access to live prices and research is included in the monthly fee, for others there is an additional fee.
An important differentiator when selecting an online broker is whether the broker only provides the highest bid and offer prices while others will show up to a depth of three levels. This allows the client to have a clearer picture of the activity in the market as well as volumes. For example, a client may want to buy 1 000 shares that are currently trading around R20.
However, at the first level there are only 100 shares on offer at R20. Without depth the client has no idea what higher offers there are in the market. If they could view the next level they may find 1 000 shares on offer for R20,10, which they are prepared to buy in order to make up the 1 000 shares. They could then bid for 100 shares at R20 and 900 at R20,10. While this is a valuable service for clients, the JSE charges brokers a higher fee for being able to show up to three levels of bids and offers.
When it comes to research, not all online brokers are able to offer research from top rated analysts as their operations cannot afford these specialist skills. Some brokers also offer charting packages which allows the investor to analyse shares through technical analysis.