Getting started - how to find a stockbroker and what to expect

When I lecture at the ASX Wednesday lunchtime lecture series, I often have people ask me how they commence the process of buying shares. By this time they usually have some idea of the type of stocks they would like to hold, but don't know how the system works, and particularly, how to find a stockbroker willing to guide them through the opening of an account and the initial purchases.

The first thing most people ask is: how much money do I need before I can start buying shares? The share registries which manage the registers on behalf of companies will allow a minimum parcel of $500 worth of shares, however as most brokers charge a minimum brokerage on each trade it is really not cost effective to buy such a small parcel and I usually recommend that $5,000 would be a more appropriate amount.

No matter the size of your proposed investments you need to take time to educate yourself about how the market works and the stocks you intend to buy. Most people don't find this arduous as once they make a few purchases, the stock market becomes almost a hobby and they take great pleasure in reading as much as they can about the market and individual stocks. Just by reading the daily newspapers a lot of information can be gleaned, and this can be backed up by business magazines, broker research and company reports. Of course, all of this information can be found on the internet as well as in printed form. ASX Investor Education offers face-to-face, distance and free online courses to help educate investors on all facets of investing. As well as these there are also the fortnightly ASX Investor Hours, which are the most popular with the investing public.

So, how do you find a suitable broker? Most people would have a friend or relation who invests in the market, and word of mouth is probably the best way to find someone who would suit your requirements. Otherwise call ASX's Customer Service on 1300 300 279 and they will give you a list of three brokers. The best way to handle these "cold" leads is to make appointments to see all three, tell them exactly what you expect out of your investments and ask them how they would handle your account. From the three you would expect to find one broker who would suit your needs, but if not, go back to the ASX and ask for more contacts.

One of the most important factors you need to consider when selecting a broker is your level of knowledge of the market. If you feel confident of your ability, then you should consider using a discount broker or trading on-line as this will usually be more cost effective than using a full service broker. However if you don't feel that you have sufficient knowledge to act alone, then a full service broker will be of greater assistance to you. If you decide on the latter, then again you need to work out which sector of the market you want to be involved in ? if you are a young, aggressive speculator you don't want an advisor whose focus is conservative investments, and vice versa.

At the time of your first visit to the broker you will be handed a copy of their Financial Services Guide, which gives you information on the types of services and products provided by the broker, information on their dispute resolution system, the various risks you may encounter whilst trading in securities and the basis on which you will be charged brokerage or fees. This is the time that you should ask any questions on information provided by the Financial Services Guide, the adviser's experience and specialisation, what commission you will pay on transactions and how much of that commission will be for the adviser's account. You should also discuss how much attention you can expect from the adviser, and of course this depends upon the area of the market in which you will be dealing. If you are interested in speculative stocks you may need to speak with your broker on most days, however if you are building up a conservative portfolio of blue chips, the same attention is not necessary. You should also discuss the type of research you can expect to receive from the broker.

Once you are satisfied with the information received then you will need to complete a client application form and also a profile form. The application form gives the broker details such as correct name of the entity in which the shares are to be purchased, e.g. individual name, company or superannuation fund, address and contact details, instructions as to whether you wish to be Chess sponsored and your preferred method of payment ? direct debit, BPay, cash management account. The profile form is probably the most important of all the forms as it gives the broker details required to follow the "know your client" rule as set out in the Financial Services Guide, and thus be able to give you advice that is suitable to your specific risk tolerance and financial situation.

Then it is a matter of placing buying and selling orders either over the phone or by email. If you have given the broker all the information requested in the profile form, the broker will issue you with an initial statement of advice confirming the details provided. As long as transactions comply with your profile, the broker will then only need to issue you with a contract note. However if the purchase is inconsistent with your profile, the broker must issue you with a statement of advice explaining the reason for the purchase. For instance, if you are a conservative investor, but for a particular reason, buy a speculative stock, then a statement of advice must be issued.

To close, there are two very important points which you should consider:

• No matter how much confidence you have in your broker, remember that it is your money and the final decision and responsibility is yours.
• The hardest investment decisions you will face are not what to buy, but when to sell.

For more information please visit the links above.

Patricia Harrison has been in the stockbroking industry for over 30 years and is currently an Associate Director with Intersuisse Ltd . Patricia is a regular presenter of ASX's classes and at the Sydney Investor Hour seminars, she can be contacted through the Intersuisse website.

© Intersuisse Ltd all rights reserved 2004. The views are those of the author and not necessarily of ASX.

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