Retail Bond Expert

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Last year's rally in share prices has revived investor interest in stock markets, and those returning to the market or considering investing for the first time will encounter a much changed regulatory environment.

The Retail Distribution Review (RDR) requires all charges for financial advice to be disclosed up front, which has resulted in greater interest in self-directed investing, especially among those with smaller amounts to invest ('In Praise of the Retail Distribution Review' - Commentary, Retail Bond Expert Sept 2012)

Retail Bond Expert (RBE) firmly believes that the key to engaging future generations of savers and investors lies in the improvement of overall levels of financial literacy by providing high quality education and information and facilitating social interaction and crowd-sourced opinion forming.

There is no shortage of brokers and platforms vying for the business of newly-empowered and educated investors, and wide choice exists according to the level of support that is provided and the charges that are applied.

Lead managers and issuers of retail bonds typically steer investors toward a small panel of distributors for each launch, but a whole range of options exist via execution-only, advised and discretionary services with the ability to take advantage of tax-efficient wrappers as appropriate.

Competition is keen in terms of headline transaction, account management and custody fees, but price should be only one of the considerations when selecting a broker.

Online share-dealing is the cheapest, fastest and most efficient way to trade and unless you are taking advice, there is no benefit to dealing by phone and, in most cases it will cost you more (exceptions being the Share Centre and Ring365 from Jarvis).

Purchasers of retail bonds are increasingly attracted to execution-only (EO) brokers although additional support is available from advisory brokers.

EO dealing fees are normally extremely competitive with average commission of around £10 per bargain charged on most transactions excluding stamp duty.

However, faced with fine margins, a low-interest environment and downward pressure on commission, many stockbrokers have introduced extra charges, such as inactivity and admin fees, which according to research house Compeer, accounted for 32 per cent of brokers' revenues in the second quarter of 2012, compared with just 18 per cent four years ago.

Selftrade, for example, replaced its annual fee with a quarterly inactivity fee (£8.75 plus VAT) in July 2012 and whilst it is possible to get around inactivity fees by trading, other fees can rarely be avoided.

Most brokers now offer flat-rate fees, but some still apply a percentage charge, with others tiered - the key is to select a broker that offers the most cost-effective tariff for your trading pattern and chosen investment strategy.

Depending on those figures, the difference between the fees you would pay from one broker to another over the course of a year could be well over £1,000.

A flat fee is much better if your trades are large, but often there is a cap on percentage fees - and sometimes a collar, too.

You should expect to be able to see your standard nominee based portfolio alongside any self select ISAs and self-invested personal pension (SIPP) accounts, and some will allow you to manage and view other family portfolios.

Standard settlement time is within three business days of the transaction - T+3 - and normally the broker will want to see the cash in your account before you make a purchase.

The Financial Services Compensation Scheme (FSCS) indemnifies investments of up to £50,000, and £85,000 for cash deposits; it should not be necessary to split your holdings between providers just to make sure your investments are covered because share and fund holdings will be ring-fenced in a nominee account.

Where stock is held in a nominee account it is not generally possible to exercise voting rights or to attend AGMs, although some brokers may be able to accommodate this facility.

Comparing Costs

The cost-differential between brokers can make a considerable difference to the outcome of a long-term investment strategy, and it is worth doing a like-for-like comparion once you have identified a short-list of potential brokers.

Consider in which instruments and how often you are likely to trade and work out too what your average bargain size is likely to be.

Think about your pattern of investing  - inactivity in a calendar quarter with some brokers can attract a fee - and consider having accounts with more than a single broker where there are benefits to be found.

Making the right choices up front can save you money in the long term as most brokers will not charge you to transfer in or open a new account, but few are as benevolent if you decide to move elsewhere - typical transfer out fees of £15 per line of stock can soon do damage to an average investment portfolio.  

What Do You Want to Trade?

Stockbrokers will generally allow you to buy and sell shares (including investment trusts and exchange-traded funds) traded on the London Stock Exchange and the Alternative Investment Market (AIM), and will ensure that only permitted investments can be traded in wrapped accounts such as SIPPs and stocks and shares ISAs.

Many also offer access to shares traded on Plus Markets, a private exchange for smaller companies, and have expanded their product offerings to include mutual funds, retail and corporate bonds and gilts and often have third-party relationships to facilitate trading in structured products, CFDs and financial spreadbetting and futures and options.

To square the circle, a number of investment information websites and portals such as Interactive Investor and Motley Fool have added transactional services to capitalise upon the users attracted by the information they impart.

Inter alia, Barclays, TD Direct Investing, Hargreaves Lansdown, Selftrade, Alliance Trust and others all offer both shares and open-ended funds, which may be useful if you want to hold all your assets in one place.

A few platforms also offer more exotic instruments such as contracts for difference, covered warrants and spread bets, while several providers also offer overseas shares, usually quoted in Sterling and often at the same price as UK trades.

Most brokers will trade gilts and corporate bonds - especially the retail-oriented ones quoted on the Order Book for Retail Bonds (ORB) where orders are generally collated during an initial offer period and facilitated thereafter in the secondary market.

Retail Bond Expert has included a comprehensive table of mainly execution only brokers for comparative purposes, but true 'apples and apples' comparison is notoriously difficult. Accordingly, we have included a column to invite customer ratings that reflect parameters that are less easy to quantify such as ease of use, and customer service.

Your participation will ensure that over time it will be possible to provide recommendations based upon the power of the crowd.