How to choose a stockbroker

What a stockbroker is

As people, we know that the products we buy from our local stores are not manufactured at the store itself. Rather, these products are produced and imported from elsewhere and then sold to us. We can then give our local store the title of “middleman”; the store connects us with the original producer of the product. The same concept applies with investing on the JSE, you need a middleman to buy and sell shares or any of the other financial products. The official term for the middleman in financial terms is called a stockbroker.

Anybody, including large financial institutions like banks, must go through a stockbroker to buy shares and other financial products on the JSE. However, banks generally have in-house stockbrokers for convenience. Traditionally, a stockbroker was an actual person, but with the advancement of technology, this has shifted. Companies that are registered with the Financial Sector Conduct Authority (FSCA)  (they changed from being the Financial Services Board [FSB]) and the JSE can offer stockbroker capabilities through their online platforms without the physical involvement of a person.

For those not familiar with the Johannesburg Stock Exchange (JSE), in simple terms, it is a market that sells shares and other financial products.

What you need to know when choosing a stockbroker

Like how you can choose the store where you buy goods, you have several options with regards to what kind of stockbroker you want. For example, your current bank can be your stockbroker, you can hire an individual registered with the FSCA and the JSE, or you can use online platforms that are similarly registered. Depending on where you are in your investing journey, there are important factors you need to consider when choosing a stockbroker. After all, not all stockbrokers are created equal.

You should make your decision on which stockbroker you want to work with carefully, here are some of the things you should take note of:

  1. The level of involvement you want from your broker

You could choose a broker whose sole purpose is to enable you to transact on the JSE. Their function ends there and does not extend to suggesting what you should buy or sell on the JSE. This type of broker is known as an execution-only stockbroker. You usually choose an execution-only broker when you want to do stock-picking yourself, with no external help from your broker whatsoever.

On the other end, is an advisory broker. This type of broker will not only enable you to transact on the JSE but will also make suggestions on which stocks or other financial instruments to buy. To make these recommendations, these companies use either research the stockbroker company has done by themselves, or the research they got from other institutions.

You could go so far as having an advisory broker that will completely manage your investments, without any input from you whatsoever.

  1. Fees! Fees! Fees!

Price always matters. So, one of the things you should consider is how much you’re willing to pay, and how much you can afford to pay. An advisory broker, given that they dedicate many hours to conducting the research for their recommendations or money for the research if it is outsourced, will most likely charge your more on fees than an execution-only broker, who does not provide any recommendations. Your bank would also likely charge you less than an individual broker. When you decide on a stockbroker, consider the size of your investments i.e. how much money you have. If you can afford more, you are welcome to pay more.

  1. The type of investor you want to be

The other important question when choosing a stockbroker is: “What am I trying to achieve by investing?” The answer to this question will determine the type of broker that you need.

If you decide that you’ll be going fully DIY in your investing and want minimal advice from your broker, the appropriate choice for you will likely be an execution-only broker. If you need assistance with some or all of your investment decisions, reason being the calming effect provided by leaving the nitty-gritty work of research to a professional, then you’ll want an advisory broker.

Find your investment style and match it with the kind of stockbroker you want.

The above factors for choosing a stockbroker are not an exhaustive list of factors to consider, everyone has unique circumstances that may bring other factors not listed into play. So, look at your current circumstances and use your full discretion in choosing a stockbroker.

The broker I use

I use Easy Equities as my stockbroker. I discovered them while I was listening to an episode of The Fat Wallet Show by JustOneLap.com, and I haven’t turned back since! I feel that they have revolutionized the investing world by allowing the average Joe such as myself to invest on the JSE.

I am a fully “DIY” investor, I do my own research and make my own stock picks, and the broker I use allows for that, and it’s easy to use. Because I’m a DIY investor, I want very little involvement from my stockbroker.

One of my philosophies when it comes to investing is to cut fees wherever and whenever possible, so that I have more money for my actual investments. As far as I know, Easy Equities is the cheapest and easiest online stockbroker there is. In that sense, they are the most suitable stockbroker for me.

Other available stockbrokers

Easy Equities is not the only online broker available out there, there are others, with different levels of difficulty, pros and cons, and fees.

Below is a link to Easy Equities, as well as links to other online stockbrokers, check them out and begin your investment journey:

  1. Easy Equities – http://bit.ly/2RicK4V

  2. Standard Bank Online Share Trading – https://securities.standardbank.co.za

  3. Rand Swiss – https://www.randswiss.com

  4. Absa Stockbrokers and Portfolio Management – http://www.absastockbrokers.co.za

  5. Sanlam Private Wealth – https://sanlamprivatewealth.sanlam.com

  6. PSG Wealth – https://www.psg.co.za/wealth

This list is by no means comprehensive, you are encouraged to do more research on other stockbrokers. Intellidex, https://www.intellidex.co.za/,  is the best place to start with your research. They provide various reports on capital markets, including an annual list of stockbrokers who stood out in a particular category.

The Easy Equities link is an affiliate link, you’ll get R50 from Easy Equities to get you started on your investment journey.

Happy investing!

This article was written by Tumelo Koko.

You can contact Tumelo Koko by clicking on the social media buttons below, or by emailing him on: tumelo@afrikakesho.co.za.

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