Full-service stockbroker

A full-service stockbroker is the traditional shape and form of the stockbroker. ‘Full’ service entails a hands-on approach with personal attention from staff. This could involve hearing your stockbroker’s views on the best companies to invest in, or receiving independent financial advice from an in-house financial planner. 

Quality analyst research & financial advice is unavoidably expensive. Full-service stockbrokers employ far more operational staff than a faceless online competitor.

These costs are recovered via higher transaction fees, or a higher level of portfolio churn (which results in more transaction fees). Alternatively, some stockbrokers wrap these costs into the standalone account/management fee charged on assets.

Full-service stockbrokers cater to high net-worth individuals who are time poor or have no inclination to actively manage their own investments. With excellent passive and lazy portfolio options now available to the average retail investor, it’s up for debate as to whether this expensive approach produces a better outcome for clients after fees are taken into account. 

Discount or ‘execution-only’ broker

Discount brokers, also known as execution-only brokers offer a simple trading service for a low price. A discount broker will execute trades on your instruction and hold your investments within an account but offer you no advice on what to buy. 

The numbers show that this is all most retail investors want or need. 

The vast majority of UK retail investors use execution-only brokers. All of the large UK stockbrokers featured in our shortlist above fall within this category. 

Full-service stockbrokers have become niche boutiques that cater to the slice of the population who have large, seven-figure portfolios which can absorb the higher costs of their service. 

Discount stockbrokers appeared on the scene in the 1990s. Two factors enabled their creation: the ‘Big Bang’ deregulation of stock markets in the late 80’s, and the rise of the web in the 90’s. These two developments allowed trades to be placed automatically without the need for a human ‘stockbroker’. This removed a huge proportion of the cost of trading.

Share dealing service

A share dealing service is an execution-only broker that specialises in trading shares.

A pure share dealing service may not support other investment types, such as Open-Ended Investment Companies or Unit Trusts, collectively known as ‘funds’.

This isn’t as restrictive as you might think. That’s because of the explosion in listed collective investments such as investment trusts, real estate investment trusts, and Exchange-Traded Funds (ETFs). As these are publicly-traded companies on a stock exchange, their shares can be traded like the shares of any other company.

These funds can invest in virtually any asset class, therefore an investor can use investment trusts and ETFs to build a diversified portfolio. 

Fund supermarket

A fund supermarket is an execution-only broker that specialises in a wide range of fund types, such as: 

• Open-ended investment companies
• Unit trusts
• Close-ended investment companies such as investment trusts

A fund supermarket is an execution-only broker that specializes in funds. 

Fund supermarkets often expand their range of investments to include share dealing services, which blurs the line between a fund supermarket and an execution-only broker.

Investment platform

Investment platform refers to any online account that allows investors to hold an investment. This broad term includes stockbrokers, crowd-funding websites or accounts with specialist providers. 

Automated portfolio service

Automated portfolio services provide a ‘hands-off’ investment experience. 

Also known as ‘Robo-advisers’, a portfolio service will match your risk profile to one of their pre-designed investment portfolios. These could include cautious bond-heavy portfolios or aggressive portfolios with 100% equities. 

As an investor, all you need to do is create a standing order each month to put your investing on autopilot. 

Examples of automated portfolio services include Nutmeg, Wealthify, and Moneyfarm.

Online trading platform

An online trading platform is a broker which caters to regular, active investors, known as day traders or swing traders. Such traders open positions for minutes, hours or days at most. 

Online trading platforms offer detailed market data and customisable charting. These are demanded by traders who rely upon technical analysis of historical price movements. 

Online trading platforms may operate a tiered pricing structure, which sees the dealing commission per trade reduce the more trades are placed in a period.

CFD broker

CFD stands for ‘Contract for Difference’, which is a bet placed between trader and broker about the price direction of a share. 

If you enter into a long CFD, you will profit if the price rises above the starting price. If you go short, you will profit if the share price falls. 

The best UK CFD broker websites may appear very similar at first glance to a stockbroker, however, there are some important differences:

• CFDs include high leverage, which means that the size of the trade is typically much larger than the cash used to initiate it. This can lead to high profits or losses relative to your stake. It’s entirely possible for your entire equity to be wiped out by a relatively small downward movement in a share price if excessive leverage is used. 
• With a CFD, you are placing a side-bet with a third party rather than owning an underlying asset.
• CFDs are generally not suitable for long-term investing, due to the fees included within the pricing which will erode returns.

CFD brokers are regulated under different rules and are not considered a ‘stockbrokers.’

The charges encountered by investors can be grouped into five categories:

• Dealing fees / trading commission
• Account fees / custodian fees / management charges
• Foreign exchange fees / exchange fees
• Closure fees / transfer-out fees
• Withdrawal fees / deposit fees

Not all stockbrokers charge for each of these services, so it's vital that you get well acquainted with the fees and charges disclosures of any stockbroker before you join. It's impossible for a comparison page such as this one to communicate all nuances within a straightforward table.

Forecast your trading frequency

The main source of income for traditional stockbrokers is trading.

Stockbrokers charge clients between £0 and £12.95 to execute a buy or sell order on your behalf. Fees are charged per trade so investing a pot of money into five companies will incur five fees.

Understanding how many trades you will place per month is crucial in understanding which stockbroker will save you the most money when doing a stockbroker comparison.

For the sake of diversification, you will want to invest in a minimum of 20 companies to avoid being too exposed to any individual business. You will quickly appreciate that trading fees can get quite expensive for active traders who invest in individual company shares.

When comparing stockbrokers, you will notice that some offer discounted rates to people who trade very frequently, for example 10+ trades per month.

Share dealing charges are often tiered. But don’t feel tempted to make trades solely to access better rates - you'll still end up paying more overall. These discounts are little more than a rebate on your large spend with the broker.

To qualify for the £8.95 discounted rate offered by Hargreaves Lansdown, you need to spend £89.50 per month – over £1,000 in trading fees per year. If this was saved and invested instead, £1,000 per year could grow to be worth £15,000 after ten years (growing at 5% per year.)

The only effective way to guarantee you reduce the cost of investing is by trading as little as possible across the year. This is one of the reasons why we encourage investors to build their basic investment portfolio using funds. Funds allow investors to own a variety of companies via a single trade, and better still – many stockbrokers process regular transactions for a tiny fee.

Get to grips with account fees

Beyond trading fees, stockbrokers also charge fees to your account each billing period. These can be labelled as account fees, platform fees or custodial fees. 

It's important to factor these fees into any comparisons, as they can be significant - particularly for small portfolios. 

These charges were introduced in the last few years. A change in UK regulations meant that stockbrokers could no longer collect commission payments from fund managers in exchange for referring investors to their funds.

Platform charges usually take two forms:

1. Fixed platform fee or a capped charge – These are suited for large portfolios, as a fixed £ cost becomes quite tiny relative to the value of assets in a large portfolio. A an annual fee capped at £100 is very affordable for a £100,000 portfolio, for example.
2. % based platform fee – These are really helpful for small investors. By charging only a percentage of your assets, such as 0.35%, the fees stay small, even for investment pots worth less than £2,000. 

Make the final cost comparison

To make a fair stockbroker comparison, calculate the ‘total annual cost’ of each provider by adding up the annual platform fee, plus the expected costs of your trades.

By using the ‘total annual cost’ benchmark, you may discover that the cheapest broker for you is neither the one with the lowest trading fees nor the provider with the lowest platform fee.

It's important to think ahead. Try calculating the platform fee using the best guess of your expected portfolio value in three years time. It can be quite costly to switch between providers at a later date, therefore you will want to choose an investment platform that fits your long term investment goals. It can take as little as £30,000 in an account for the fixed fee options to look more attractive. 

Your investing style will play a role in determining which broker is the perfect fit for you. That’s because the pricing structure and features of a broker will naturally complement some investing styles over others. 

What is an investing style? Your investing style could be dictated by the type of investments you prefer, your volume of trading or your outlook on the market. 

There are many different styles, with considerable overlap between them. After reflection, you may consider that you are a hybrid of multiple styles. Here are some examples: 

• Individual company investing
• Fund investing
• Dividend investing
• Growth investing
• Active investing
• Value investing
• Day trading

Love funds and don’t intend to ever buy shares? Go for a broker which doesn’t charge you to buy funds. 

Want to build an individual portfolio of dividend-paying shares? Pick a stockbroker with low share dealing fees and a cheap dividend reinvestment service. 

Small pot? Avoid fixed-fee brokers and choose one with an account fee based on a % of your assets, so that the charge is relatively low.