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FEATURE: A guide to advisory broking

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21/04/2008

When investing your money, you may choose to use an advisory brokerage. Barney McCarthy explains the basics

If you decide that the stock market is where you want to invest your money, there are a number of methods by which you can get your hands on some shares. Those confident in their own ability to pick out the movers and shakers may decide to use execution-only services, which enable you to access the stock market without any advice. At the other end of the spectrum, you can delegate responsibility for buying and selling investments to your financial adviser by using a discretionary service. Somewhere in the middle of these two options is advisory broking.

There are two main types of advisory broking. With the first, you seek advice only on buying, selling or holding onto specific stocks, without necessarily going into the details of your other investments or long-term financial objectives. The second method involves giving full details of your investments and seeking advice on the best strategies for your fund as a whole. Unlike discretionary services, your broker will not take any investment action without your express authority.

Ian Cornwall, head of UK regulation at the Association of Private Client Investment Managers, says: “Advisory broking is for individuals that want the final say regarding their investments. Clients may want ad hoc advice on investing in particular shares or advice in the context of a wider portfolio of shares for which they may also want to receive regular portfolio valuations. Individual brokers offer a range of different services and can provide further information to potential clients about their particular services.”

Mix it up

Although discretionary, advisory and execution-only are regarded as the three main methods of accessing the stock market, there are not always strict parameters between the three, with some propositions offering a subtle blend. Guy Knight, sales and marketing director at The Share Centre, says the online share dealing service is predominantly an execution-only operation, but will also offer advice. “Once investors have an account with us, we offer free advice, whether they have a portfolio worth £1,000 or £1m. We can give them our opinion on an investment, but this advice ends when they put down the phone; it isn’t an ongoing, monitored situation like with advisory broking.”

Knight says The Share Centre’s proposition is aimed more at the mass market, whereas advisory broking can sometimes be regarded as the domain of the more wealthy investor. “This is partly because the broker has the duty of having to monitor the advice on an ongoing basis and having to communicate this to the investor. Under monitoring requirements, they have to provide the audit trails for doing this.” This whole procedure can be quite time-consuming for the adviser, so expect to be charged accordingly.

The charges you pay can vary dependent on you level of proficiency and therefore the level of assistance you require. For its discretionary and advisory managed accounts, Stockbroker Charles Stanley decides management fees by arrangement, subject to a minimum annual fee of £400 a year. With its execution-only and advisory dealing charges, valuations are £50 each, Capital Gains Tax consultancy costs £75 per hour and there is a dividend charge of £4 per dividend.

The Share Centre also publishes information on its website regarding its views on certain stock options and will rate different investments “buy”, “sell” or “hold”. There are a number of such websites that you can use to formulate your opinion before making an investment, so don’t feel that you have to use the advice of a broker through discretionary or advisory broking. However, if you are unsure about stepping out on your own, it may provide a happy middle ground.

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