How Should Intelligent Investors Compare Stock Brokers?

Investors Compare Stock Brokers

If you’re performing online research to discover the best stockbroker, you’ll already know a few metrics that you can use to compare stock broker services. These probably include share dealing commissions and platform fees. However, this is truly the tip of the iceberg when it comes to distinguishing one service from another. In this article, we’ll go into more detail and share what else savvy investors should be considering when comparing brokers. 

Which feature is the most ignored by would-be investors?

Of all of these different points of comparison, the feature which is most neglected by traders is the reputation of the stockbroker. 

That’s not because users aren’t looking for a reputable broker – it’s because it’s difficult to ascertain what the true reputation of a stock broker actually is. 

Consider what you might see when using Google search to perform research about a stock broker you’re interested in: 

  • The stock brokers own website
  • The stock brokers own blog, with articles designed to capture such searches, including “Is [broker name] a good broker?’ and ‘does [broker name] have a good reputation?”
  • The websites of affiliates of the stock broker. These are third party companies or individuals who are paid to refer customers to the stock broker. They may be incentivised through this relationship to provide a positive review, on the basis that this will lead to higher commission. 
  • Broker comparison websites, which may be incentivised to criticise the stock broker that you are researching, in order to promote a different stock broker

All of these sources are potentially compromised from an integrity and independence standpoint. 

As a potential investor, you want to head straight to sources that offer a balanced series of facts about a stockbrokers as a career or service.

Public review aggregation

I recommend looking at the Trustpilot (or similar website) score of the UK stock broker, as an indicator of whether their users are having a positive or negative experience. By crowd-sourcing information from existing users, you can gain valuable insights about what it’s really like to be a customer of the firm. 

Remain open to the possibility that public reviews may not be genuine. This can influence the score in both directions – falsely positive reviews that aim to downplay or mask genuine concerns, or negative reviews designed to dent a competitor’s score. 

You’ll never know for sure whether reviews are genuine, but you can establish a level of confidence in the aggregate score by taking the time to read a sample of reviews of different levels of positivity and drawing your own conclusion. 

A recent trend I have noticed is negative broker reviews, which include a pitch for readers to contact an email address for help with recovering funds lost through a scam. This is essentially spam hidden within a review and high volumes of such reviews are likely negatively impacting the overall broker score. 

Search for news articles about the firm in mainstream media outlets

Use the Google search parameter of site:[newspaperwebsite domain] + [stock broker name] to reveal articles written by your favourite trusted journalism source about the stock broker. 

These articles may be straightforward press releases (like the launch of a new service) but the context around how the stock broker is described is often helpful. If the stock broker is referred to as a ‘leading UK broker’ or the ‘market leader’ then this gives an indication that the stock broker is well-known within the industry. 

Alternatively, the articles may refer to a ‘troubled firm’ that is ‘plagued by a series of regulatory failings’. This can act as a handy red flag that the firm may not be well managed as you would want your stock broker to be. 

Check the regulatory status of a stock broker

If you’re a UK investor, you’ll want to visit the FCA firm register which lists all of the authorised stock brokers in the United Kingdom. Inclusion on the register doesn’t automatically mean that a firm has permission to provide stock brokerage services, therefore click through the firm name and look at the individual permissions that a firm has been given by the regulator.

Size matters

If in doubt, pick one of the largest UK stock brokers to ensure that you’re dealing with an established and reputable firm. 

Any start-up with a reasonable marketing and IT budget can produce a slick website which looks and feels like a professional service. But only a stock broker which is satisfying customers year after year can build up hundreds of thousands of clients or £ billions of assets under management. 

Therefore, search for the latest list of top stock brokers by size or by the number of clients to understand who the leading providers currently are in the UK. 

Of course, by sticking with the safer incumbents you may not be able to take advantage of the latest interfaces or cheap business models of new entrants such as zero-commission trading apps or other innovative services. You are however providing yourself assurance that you are choosing a financially stable firm that has already demonstrated for years that it can protect client assets from wrongdoing.

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