Full service brokers
There are two main types of brokers. The first is called full service. As the name implies, you’ll get more personal attention with a full service broker. You’ll be allocated a client adviser, who will be your main point of contact with the company.
So what can you expect from a full service broker?
Well, first and foremost you’ll get advice. You can ring your client adviser and ask them about a company, and they will tell you what they think. This can be a useful service if you want investment ideas or someone to bounce ideas off. You’ll also get research on sharemarket-listed companies if you request it.
And even if you don’t find the advice useful—and there’s a good reason why it might not be, which we’ll explain shortly—a full service broker can be useful for obtaining shares in floats. Brokers typically reward their best clients—and by that we mean those who provide them with the most commission—with shares in new issues. Floats can be quite lucrative, although that’s not always the case. In fact, many investors steer clear of them as a matter of principle.
As we said, you get what you pay for. Client advisers and research staff don’t come cheap, so you can expect to pay up to $150 or 2.5% commission with a full service broker. And there’s another major drawback too. As brokers are paid only when you buy and sell shares, they have an incentive for you to do exactly that. So every time you speak to your adviser, you must ask yourself—are they really acting in my best interests, or do they just want my commission?
