A large section retail investors invest in the stock market with the hopes of making attractive returns on their investment. Stockbrokers help investors to undertake their stock market transactions and buy and sell stocks on behalf of their clients. Many brokers also provide advisory services, assist their customers to subscribe for IPOs, invest in financial instruments and debt funds. There are a large number of brokers and sub-brokers available in the market place offering a wide array of services to investors. But it does not mean every broker operating within the market space is reliable and efficient and is offer quality service at an equal level. Hereby, selecting the right broker is a vital decision which can have an immense impact on the investor’s returns.
Retail investors should investigate the following factors before finalisation and selection of a broker to handle their stock market transactions.
- Background Check of the Broker
Before selecting and finalising your stockbroker, it is essential to conduct a thorough background check of the broking firm or the individual broker by checking their past performance, registration with SEBI, online reviews etc. This can help investors from safeguarding themselves from frauds, cases of cheating etc.
- The requirement of Minimum Balance
Many brokers and broking firms have a requirement of maintaining a minimum balance, depositing a certain amount at the time of account opening. It is important to compare the minimum balance requirement as it differs across different brokers and broking firms. It is a vital feature to check in case an investor does not transact on a frequent basis.
- Customer Service
Customer service and availability of broker for providing advisory services, answering queries and offering suggestions promptly. Prompt customer service is essential for buying and selling stocks at the right time to ensure optimal returns on their investments.
- Cost of Commissions and Various other fees
Every broker and brokerage firm charges commissions, brokerages and a wide array of other charges for the services offered to their customers. Brokerages and commissions are charged on every transaction incurred while buying and selling stocks. These commissions, brokerages, fees and charges affect the returns on the investor. Hence investors should compare the various commissions, brokerages, fees and charges levied by different broking firms and brokers before finalising and selecting their brokers.
- Additional After-Sales Services
Additional add-on services offered by brokers and broking firms can always be beneficial for the investors, and they can compare these supplementary services offered across different brokers and broking firms before selection and finalising their brokers or brokerage firms. These extra services can help investors to achieve their financial goals and objectives.
- Hidden fees and Changes
Many brokers advertise low commissions and brokerages but have a wide array of hidden fees and charges which the customers realise only post incurring transaction. These hidden fees and charges can often come as a rude shock for investors. Hence it is important to read terms and conditions before signing the agreement as these hidden fees and charges can put a dent upon the returns on investments of the investors.
- Investment Options
Many brokers and broking firms have tie-ups with various mutual fund houses and fund houses which can allow an investor to buy, sell and invest in mutual funds, fixed-deposits, exchange-traded funds etc. While a discount trader might not be able to offer these services, most full-service broking firms offer these services. Hence, an investor can select a broker or a broking firm according to their investment needs.
- The requirement of Minimum Trades
Many brokers and broking firms have a minimum trade clause or a sub-clause within their service agreement, and investors can be levied a penalty for not executing a minimum amount of transactions or trades within a stipulated period. Investors who hold stocks for long terms and do not make frequent trades need to check the of any minimum trade clauses and its corresponding penalties in their service agreements.
- Research Reports
Many full-service brokering firms offer research services and reports on a regular basis to their customers while discount brokers do not. These research reports provide an outlook on the analysis of companies, industries and sectors etc. These research reports can offer guidance and vital data to investors for making their investment related decisions. Hence investors who do not have knowledge regarding financial markets and do not have access to market-related information should opt for brokers and booking forms offering periodic research reports.
- Local Offices
Different investors prefer to communicate with their stockbrokers in different ways. While some investors might prefer communicating with their brokers over the phone and email, other old-school investors might prefer communicating with their brokers by meeting them face to face. Hereby, for consumers who prefer personally meeting their brokers should select brokers or broking firms which have an office in their cities.
Further, another advantage of selecting a broker or a broking firm with an office in their city is resolutions of complaints and disputes. It can be easier to resolve disputes by visiting the local offices of your broking firm as compared to making complains about call centres and calling customer service departments.
The Verdict
Every investor has a different investment goal, and hence no single broker can suit the needs and requirements of every investor. Will discount brokers are suitable for investors who do not make regular trades and have substantial knowledge of the stock and financial markets, while full-service broking firms are much suited towards investor who need advice, support and guidance of their brokers.