Gone are the days when you would struggle to find a stock broker to help you execute a transaction. A decade ago, even if you had a good investment idea, to get a stock broker to execute it was difficult. This was because brokers catered primarily to the rich and wealthy. Many a time orders placed with them would remain unexecuted or were executed after a week. Contract notes or bills were given after a long time, and the brokerage charged could be anywhere between 2% and 4%. However, thanks to technology, today the scene has changed completely. Many of us now get cold calls from bigger broking houses, trying to sell their services to us. They are ready to come to your house to open accounts, even negotiate brokerage rates, offer both online as well as offline services and a number of freebies with that. In such a scenario, how should you choose your broker?
IDENTIFY YOUR NEEDS
To start with, you first need to understand something about yourself. What type of investor are you? What are the products that you deal in? Do you deal only in shares, or do you also need mutual funds, fixed deposits, derivatives and commodities? What is the size and volume of your transactions going to be? If you also prefer to trade in commodities and currencies, it would make sense if the same brokerage house can offer those services. Once you have answers to these questions, you can start looking out for a broker. It is but obvious that brokers would like to cater to bigger clients first, as their profitability quotient would be far higher. If you wish to place an order over the phone, it is important that the broker should pick up your call and be responsive to you.
Secondly, you need to understand if you need handholding while making your investment decisions or you can take them independently. Most investors do not have time and resources to track the financial markets, and prefer seeking out advice on their investments in the stock market. In that case, it is essential that you go with a broking house which has a good research team that can cater to your needs. A broker should have the ability to provide unbiased research to service your needs.
ABILITY TO SERVICE
This is a very important criterion while choosing your broker. The broking firm you wish to deal with should have the ability to meet your needs and service you as per your requirement. If you are comfortable with physical copies of bills rather than electronic copies, the broking firm should be willing to provide them to you. If after selling your shares, you want a cheque, the firm should ensure that it is delivered to you on that day. These are small things, but make it convenient and easy to choose your broker.
How well the brokerage house can cater to you is the most crucial thing while choosing one over another. So, if you have queries on your bill or you need information on a particular trade, the broking house should have enough infrastructure to assist you. The infrastructure could be in the form of the branch, back office or even a call centre. Some broking houses have call centres that cater to their client in multiple languages. So, you can place an order or get a query resolved in a language you are comfortable with. In addition, today there are firms which send out text message at the end of the day, confirming your orders or the amount that is being debited or credited to your bank account. This all keeps you informed as an investor about what is happening in your account.
However, if you are the type who wants to invest on your own without any manual intervention, you could opt for online broking or mobile broking. Besides calling your broker and waiting for your turn on the phone, you are also saved the trouble of going to the bank or the depository to deposit cheques and issuing delivery instructions. Today besides equities, online brokers also offer you products such as mutual funds, insurance policies, fixed deposits, post office schemes and also help you apply for initial public offers (IPOs). In terms of comfort, when dealing with bank brokerages like icicidirect, the money remains in your bank account only, and leaves it only when the transaction takes place. In the offline world, brokers would ask you to write margin cheques before placing an order. Ideally, your broker should offer you a three-way access to your account -- one through online, second through the centralised call centre entity and third via a relationship manager in a branch nearby. Such an arrangement can be convenient, especially when you are travelling or do not have access to the internet.
COMMISSIONS & BROKERAGE
Often, smaller broking houses try to lure investors by offering lower brokerage charges. There are some brokers who quote lower brokerage if you trade online, but demand higher charges if you choose to trade through a call centre or a relationship manager. Hence, it is essential to check the pricing for each mode of trading. When you see the 'demo' before signing with a broker, the trading tool works absolutely fine. But there are issues such as a slow internet connection that may adversely impact your real-life experience. Also, some trading terminals may need a broadband internet connection. It is advisable to have both the broadband friendly fully-loaded version of the trading screen and the 'lite' version that works on slow internet connections. Since you are dealing with your finances and hard-earned money, trading terminals should have good online security measures. Reputed broking houses do keep upgrading their firewalls and security systems at regular intervals. It is advisable not to access your trading account from cyber cafés or publicly-used computers. Retail investors should go with a sound broker and ensure that there is no-fly-by-night operator.
Then there is a choice to be made between prepaid and pay-as-you trade brokerage. Today a lot of broking firms, be it ICICI, India Infoline or Sharekhan, have started offering pre-paid brokerage schemes, starting from as little as 2,000 upwards. Essentially, investors pay a lump-sum brokerage upfront and enjoy discounted rates on their trades. Investors should look at the frequency of trading before opting for any scheme or rather go for pay-as you trade instead of opting for any pre-paid brokerage scheme. Today competition is so cut throat that there is hardly a brokerage difference of 10-20 basis points between one broker or another. Hence investors should look at other factors before looking at the brokerage.
Last but not the least, investors should go for those broking houses which keep the clients interest above their own interest. Choosing the right partner or broker, could go a long way in building your financial wealth.
Get The Best Deal from Your Broker
You should do the groundwork before zeroing in on a suitable broker. The rule of thumb is to go for those broking houses which keep the clients interest above their own interest
Broker Checklist
• A broker should offer you multiple contact-access points be it through the phone, internet, branch or a call centre
• Most brokers offer you free research reports through e-mails
• Going online, ensures that there is virtually zero paperwork, as debits and credits take place into demat and bank accounts directly
• A strong brand name instills a lot of confidence while dealing
• Ensure that the brokerage house is transparent in its dealings
Brokerage Plans
Plan 1: Pay per trade or pay when you transact
Open an account with your broker Whenever you make a buy or sell shares, the broker charges you a broking fee for the transaction
Plan 2: Annual fees (Pre-paid brokerage)
Broking firms offer you the option of pre-paid brokerages wherein you make a commitment for a brokerage amount and pay the broking fee upfront
Based on the amount of brokerage that you commit, you are eligible for a certain amount of volume, typically at a discounted rate (lower rate than plan 1)
This pre-paid brokerage is also eligible for trading in commodities, derivatives trading, and depository transactions with the same firm
