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Finding a warrants adviser

One of the most important decisions you need to make as a warrants investor is your choice of adviser. You may already be using a broker to buy and sell shares. If your broker also advises on warrants, there may be no need to look elsewhere. However, if your existing broker is not active in warrants, or accredited to advise on warrants, it is wise to seek out a specialist broker in this area.

Services offered by a broker

There are many types of services available, and you should decide which service, or combination of services, you require. Stockbroking companies offer all or some of the following:

  • order taking and execution
  • advice on the equities market
  • research on listed companies
  • portfolio evaluation
  • financial planning
  • taxation planning
  • superannuation advice
  • margin lending

The availability of these services generally relates to how much commission (or brokerage) you are charged.

Services required by the warrant investor

The services you require from your broker will depend in part on the type of warrant you are investing in. For example, investment-style warrants, such as instalments are longer dated and usually less frequently traded, and therefore may require less regular monitoring.

Trading-style warrants, such as equity call and put warrants are shorter dated and more frequently traded, and therefore may require frequent monitoring.

If you do not have access to live price information via the internet, the broker you select should be able to provide you with a level of service which suits your needs in this respect.

Types of broker

In Australia, warrants are traded through three types of broker:

  • full service brokers - those that offer you advice on the market, research and the many other services described above.
  • discount brokers - those that offer no advice to you, but simply execute your instructions to buy or sell. Your instruction can be electronic (over the internet) or in person (usually by telephone).
  • a combination of trade execution service and limited other services.

The choice you make will depend on your previous trading experience, your level of confidence and your other needs.

Qualifications required by a warrants adviser

Before making recommendations or giving advice to retail clients in relation to exchange traded options and most warrants, an adviser must be accredited. There are two levels of accreditation.

Level one accreditation is required in order to advise on:

  • warrants
  • taking options
  • selling options to close a taken position
  • writing covered call options

Level two accreditation is required in order to advise on:

  • writing options
  • multi-legged option strategies

If you require assistance in finding an accredited adviser, please contact ASIC Customer Service on 1300 300 630. 

The criteria you use in selecting an adviser will vary according to your needs and level of trading experience. Note that options and warrants can be traded through full service, or ‘advisory’ brokers, as well as discount, or ‘no advice’, brokers. If a broker offers an execution-only service, without providing advice, accreditation may not be required for their representatives.

Commission

Commissions charged by brokers vary and can be:

  • a flat fee, charged on a per transaction basis
  • on a percentage basis i.e. a percentage of the gross value of the order, or
  • a combination of these two, such as a flat fee for orders up to a certain dollar value, and a percentage charge thereafter.

Commission charged by a broker is subject to negotiation, and will depend largely on the amount of business you transact through your broker.

If you are an experienced trader, and do all your own research and price monitoring, you may only require a broker to execute your orders. For this service you usually pay a lower commission. If you are new to the marketplace, you need to consider this aspect carefully, and balance the benefit of cheaper commission against that of having an experienced adviser work for you.

Choosing the right adviser

You may wish to contact several advisers to find out about:

  • the service they provide
  • the brokerage they charge
  • the size of accounts they handle
  • their investment philosophy

It is also useful to meet with an adviser in person before making your final decision. You should feel comfortable with your adviser and have confidence that they will provide the sort of service you require.

Under the Corporations Act an investment adviser must consider a person’s investment objectives, financial situation and particular needs in making any securities recommendations. As there are risks involved in investing, including warrants, it is important that there is a very clear understanding between the adviser and the client of the risk profile that is acceptable to the client.

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