As we thoroughly proved in our article “What difference does your choice of stockbroker make?” the decision of which UK stockbroker to entrust your investments with is a critical one, and perhaps the second most important investment decision you’ll make beyond the actual selection of assets.
Now that we’ve established the five different ways in which a broker can help or hinder your portfolio, you’ll be looking to whittle down the full list of all UK stockbrokers to a more manageable stockbroker shortlist that will allow you to concentrate your research into 5 – 10 firms rather than the whole of a market.
Why is creating a stockbroker shortlist important?
The following reasons are why taking the time to decide on a panel of 5 of the best UK stockbrokers is better than signing up straight away for your ‘favourite’.
- Your favourite may change. It’s important not to rush the initial research stage, because as you review additional brokers, you’ll actually learn more about stockbrokers in general. What types of services do they offer, what is a typical price for services? As you continue your search, you may realise that the marketing claims of the first firm you heard about aren’t actually that special. You may notice that one characteristic is actually quite rare and is only possessed by a couple of firms.
- Move beyond the shouty brokers to find the economical, cost-conscious brokers. Some brokers spend more money on marketing than others. For example, in early 2023 I have seen TV adverts from Vanguard Personal Investor, Nutmeg and billboard advertisements by Hargreaves Lansdown and others. A marketing budget doesn’t always correlate with value for money or quality. In fact, logically speaking, a firm that spends less on marketing might be able to offer its clients more services for less. Of course, this isn’t a rule of thumb. A firm that saves money on marketing might simply generate more profit instead, or subsidise a completely different service that you won’t use.
- Find the perfect broker for you. Only by stacking several good firms side by side will you be able to determine which is the optimal one for you. When haphazardly comparing random firms, it may be easy for a strong one to look vastly superior to the rest. However, when you re-compare the top 5, you may realise that your initial preference is actually more average than you first thought.
How to create a stockbroker shortlist
Begin with our full list of stockbrokers or our full list of stocks and shares ISAs and apply these rules to narrow down your search:
Step one: Consider whether you differ from ‘the norm’
Assess your needs as an investor and whether you have any special requirements that would dramatically alter which broker is right for you.
- Are you a tax resident outside of the UK?
- Do you want to buy physical share certificates rather than a broker hold in a nominee account?
- Will you be trading as a full-time professional?
- Do you wish to trade derivatives and other products available only to sophisticated investors?
Answering yes to any of these questions suggests that you may need to seek the services of a specialist or commercial broker that can cater to your specific needs, as you do not fit the profile of a typical UK retail investor. The standard accounts offered by the best UK stockbrokers will not likely serve you as well as a firm that is set up to provide advanced products.
Step two: Only deal with firms that are fully FCA regulated
There are so many stockbrokers in the UK that you don’t need to consider for a second using an unregulated, unauthorised firm.
Offering stockbroking services to UK clients without FCA authorisation is a criminal offence and therefore it goes without saying that the types of individuals who would operate in this black market are not the sort you would want to trust with your money.
Unregulated firms may often pretend that they are regulated, or they may falsely present themselves as representatives of a legitimate, regulated firm. Check out our guide for avoiding investment scams to ensure that you don’t get tricked into believing you’re putting your money into a regulated firm when you’re actually not.
Step three: Shortlist stockbrokers with an established UK client base
It makes sense to pick a stockbroker that already has a base of many happy British customers. There are no points awarded for taking risks with your choice of broker.
If you choose to invest your money with a brand-new start-up that may only have funding secured for the next two years, you only have yourself to thank if the investing app shuts its services after only a short period if it failed to find financial viability.
This has happened recently, with Orca closing to UK clients and returning client funds in the second half of 2022.
We’ve prepared a quick summary of the largest UK stockbrokers by number of clients, in case you want to see which firms top the list.
Step four: If you don’t want financial advice, exclude firms with uncompetitive annual fees
The financial services industry caters to clients with a wide range of knowledge.
For those who do not have the time or the desire to become financially savvy and pick their own investments; boutique financial advisers can understand a client’s needs and design a bespoke portfolio that works for them.
On the other end of the spectrum, the majority of assets are now held by execution-only stockbrokers that merely act upon their client’s instructions for a competitive fee.
If you’re happy to pick your own funds or shares, then you need to whittle down your stockbroker shortlist to only include these execution-only players. The fees of advice-orientated stockbrokers are much higher because their cost base includes the salaries of qualified financial advisers and analysts that you won’t be benefiting from.
Trimming down your stockbroker shortlist
In summary, you have now created a shortlist of UK-regulated, execution-only, established firms that have competitive fees.
The number of UK firms that could qualify for this list still exceeds 50+ candidates, however, so how can you up the ante and reduce this to a final shortlist of 5 – 10 firms that are truly worthy of your attention?
Well, we’ve performed our own research and reviews of the UK market and have produced the following ‘best-buy’ list of stockbrokers. This is a live table that will change and update over time as our opinions evolve and new firms earn the right to be listed alongside our stockbroker award winners such as eToro (read review) and interactive investor (see our review).
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