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How to find the right full-service broker and get the most from them

Photo of Marcus Padley By Marcus Padley

min read

The key is personal relationship and above-average value.

When I started broking in 1982 there were no personal computers or email, or online broking of course. Everyone used full-service broking. Now if you talk to people about full-service brokers, many will launch into the bad experiences they have had.

There are complaints like no contact, no follow through on an idea/trade, feeling like you are too small a client, feeling like you can’t ring in case you are bothering them. And the main ones of losing money, no service and making more money on your own ideas than theirs.

They are often valid complaints, so why do full-service brokers still exist? They offer benefits such as compliance integrity, ideas, information, research, access to corporate deals – and lunch.

Here are a few things you should know about finding one:

Pick a firm carefully

The broking firm you deal with clearly matters. You cannot judge them as equals, so pick carefully. You are looking for integrity of management, integrity of systems and a business that focuses on you, the private investor, not a commercial business that just happens to have a broking licence and treats you as a target but makes you think you’re a client.

Big or small?

Big-brand brokers are safer but small ones often have the more interesting advisers and advice. At the end of the day the successful client is one who takes the time to develop a good relationship with an individual broker first, their firm second.

A long-term trusted relationship with an engaged full-service broker will pay huge dividends. Where it will go wrong is when they just want to sell you products, put you on an annual fee and ignore you. If you let them, you are the perfect client, the pinnacle of the reward versus effort ratio.

Will they be interested in me?

If you approach a big successful broker you could be too small to be paid any attention, and even if you are big you will find they milk you for wrap-style fees and have no motivation to manage you, just keep you.

The golden rule of full-service broking is to get value for your fees. Buying you 10 managed funds and then ignoring you is not adding value. That’s execution and you can do that yourself.

The compliance stranglehold

It used to be that brokers were colourful characters that knew stuff and would tell you, their valued client, about it. They spoke in whispers and took risks. These days they have had their more creative talents hemmed in by compliance, a factor that has made the advice offering of full-service broker rather bland.

I’m not sure it best serves the client when advice is muzzled, but that’s regulation for you. Compliance means brokers can’t tell you what they know and the more distant/new/unknown you are as a client, the blander the advice will be.

The problem is that many get corralled into giving you advice about diversification and average returns. Anyone can access average returns through 3000 managed funds and the ASX-listed ETFs and Listed Investment Companies. You don’t need a broker for that, you need them to add value, so if the value you get is “average”, you are paying too much.

Understand the motivation

Ask brokers how they are paid. Some advisers are salaried and told to sell products. Others are paid commission. Knowing will help you understand their drive and interest in you. Ask what makes a big client or a small one and try to assess where you sit on their list. Then you will understand whether you are going to get called or not, whether you need to be more proactive and whether you are with the right adviser.

You may not want to be the biggest client and you probably don’t need to be the smallest, but it’s interesting to know.

Take responsibility

Many believe their broker or financial adviser is going to take responsibility for the client’s money and investment returns. They will not. It is the individual’s responsibility to look after their money. If you show no interest then no one else will and the investments will wither on the vine once the initial effort has been made. You have to involve yourself, not sit back and expect your broker to make it happen alone.

Being a liability

In the current compliance environment, clients can quickly become a liability to a broker when they were supposed to be an asset.

Settlement risk is a big issue these days. Any broker who trades for you is trusting you to settle. You may not realise it, but most broker dealers are personally liable to settle their client’s trades if the client does not. Don’t be surprised if your relationship, and the value it delivers, crumbles when you don’t play the game.

Broking is a service industry

It is not a bunch of people that you demand make you easy money. For retail clients, it provides execution of trades, the administration of share trading, administration of shareholdings, portfolio advice and financial planning.

Somewhere on the list comes research, more specific advice and access to new listings. Further down the list comes money-making information. The problem with impatient investors is that they expect to get money-making information first. That’s not realistic and will never happen unless the broker has a relationship with you.

If you fail to relate to your stockbroker you will get a professional service at best. With the smaller broking houses you won't even get that.

Is it you?

If you are having trouble with brokers and go through them regularly, then stand back and have a look at yourself. New clients that have had a series of brokers flash warning lights to other brokers. A client who has left a broker is of concern, leaving more than one is suspicious. The wrong attitude, poor settlement history, too small, too demanding, not experienced enough or, more likely, too time-consuming, are all factors.

Brokers as mates

The best broker relationships develop beyond execution and advice to friendship and trust. You can’t do much better than that, as long as it is coupled with success. Which raises another issue: the broker you get on very well with while achieving terrible results. There is something wrong and you need to politely move on. Although some relationships are worth more than money; it’s your choice.

Alarm bells for brokers

There are a few things about clients that ring alarm bells with brokers. In the tech boom one of the most obvious ones was the big trader without a broker. Others are a reluctance to meet, PO boxes, no landline phone, anonymous email addresses, settlement without a cash management account, picking up cheques from reception, no discussion about family or no interest in you personally, someone who buddys up too quickly.

It’s a minefield, all of which can be overcome by just being straight and normal.

Alarm bells for clients

There are some things about brokers that should ring alarm bells with clients. If they don't trade the market themselves, they're not passionate about the market, not seasoned and have not been through the mental hoops you will be put through, how can they possibly advise you? If they don't ask you about yourself, they have no concept of risk.

If they negotiate their commission rates, they have no pride in what they are offering you. If they emphasise the minimum commission rate, they are used to dealing in small orders.

If they are eager to take you on despite you saying you want to invest $1000 across 10 stocks, they care about commission, not you, and see you as a quick kill rather than a long-term, mutually profitable relationship.

Starting from scratch

When you are looking for a broker from scratch, look for someone else who uses a broker and is successfully and happily investing or trading. Get a referral to that broker if you can. Good brokers hate cold calls.

Another technique is to ring your potential broker and ask for the firm’s head of equities. Briefly explain your circumstances, requirements and desires and ask to be put on to an appropriate adviser. The head of equities knows the good ones and the bad ones, and the good ones get the clients.

If you have a broker and are not getting what you want, ring the head of equities again and ask if they have a better suggestion. They will be keen to keep you so will do the right thing. Don’t worry about the broker’s feelings. Money takes precedence over misplaced politeness, and brokers are very thick skinned.

It has to work for both of you and in most cases when it’s not working they will be relieved to hand you on.

Finally, it is a reality of the industry that if you do not have a lot of money, experienced brokers will be less interested in talking to you. A broker’s life is a constant balance of time versus money. So for clients who are time-consuming and small, a young broker is often the best.

Youngsters sit among the old warhorses and can pick up a lot. A keen, reliable but new broker can often give you a better service and a better chance of good information than an older experienced one, because they might just ring you.

About the author

Marcus Padley @Marcus_Today is a stockbroker and the author of the daily sharemarket newsletter Marcus Today. Access a free trial of the newsletter here.

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The views, opinions or recommendations of the author in this article are solely those of the author and do not in any way reflect the views, opinions, recommendations, of ASX Limited ABN 98 008 624 691 and its related bodies corporate ("ASX"). ASX makes no representation or warranty with respect to the accuracy, completeness or currency of the content. The content is for educational purposes only and does not constitute financial advice. Independent advice should be obtained from an Australian financial services licensee before making investment decisions. To the extent permitted by law, ASX excludes all liability for any loss or damage arising in any way including by way of negligence.

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