We’ve covered all the essential points of how to create a shortlist of stockbrokers using fundamental characteristics. But in this article, we’ll focus on the topic events of 2023 and how this has affected the way that we evaluate stockbrokers during this year.
The best brokers for 2023
Adapting our rankings for the three points below, we’ve shortlisted the following brokers as being the best of the best for UK investors in 2023:
Buy and sell funds at nil cost with Fidelity International, plus simple £10 trading fees for stocks & shares and ETFs.
Capital is at risk
Trade stocks & options on the advanced yet low-cost Freedom24 platform that arms retail investors with the tools to trade like professionals.
Capital is at risk
Access to corporate bonds as well as equities
Despite their widespread issuance, corporate bonds are actually a difficult asset class to invest in directly.
Unlike the stock market, corporate bonds can’t be traded in single unit quantities as low as 1 bond. Instead, they’re traded as larger lots which makes them prohibitively costly for retail investors to acquire. It would be impossible for an investor with a £100,000 portfolio to build a diversified portfolio of corporate bonds through direct purchases.
That’s why investors turn to passive corporate bond funds to access this market. Once pooled together, investor capital is used to buy a representative sample of corporate bonds, and therefore investors get exposure to a wide array of company debt without needing to suffer high minimum trade sizes.
However, the use of funds for bond exposure means that stockbrokers that specialise in share dealing may nudge their clients away from corporate bonds as an asset class.
Corporate bonds have suffered a well-documented fall from grace in 2022. As interest rate expectations finally picked themselves off the floor in response to central bankers acting to tame inflation, high bond values have crashed as their yield-to-maturity has slowly risen to keep pace. This one-off shock has reflected the mindset shift from ‘low interest rates will continue in perpetuity’ to ‘interest rates may need to remain high to control persistent inflation’. However, now that the price has adjusted, many investors are eyeing the improved yields of corporate bonds as an attractive opportunity.
Competitive interest rates paid on cash
Now, many will argue that this characteristic isn’t essential for all investors. Unused cash can, in theory, be parked in a high-interest savings account and transferred into a brokerage account only when it needs to be deployed.
However, around the end of the personal tax year, investors may be contributing large lump sums into
stocks & shares ISAs to fully utilise the available allowance. This cash will usually be drip fed into the market rather than invested as a lump sum. This will leave a sizeable pot of dwindling cash that could sit within the ISA uninvested for many months.
If this sounds familiar, then perhaps you’ll want to start checking what rate of return your broker pays on cash balances.
The difference between stockbrokers can be dramatic. Vanguard Personal Investor has recently moved to a ‘managed cash rate’, which means that the rate won’t be directly linked to the BoE base rate. Still, this rate is now 2.2% as of March 2023
However, AJ Bell offers a variable rate which is loosely connected to the base rate. It estimates the rate falling between 1.15% and 0.15% below the base rate. As the official base rate is currently 4.25%, this implies a range of 4.1% – 3.1%.
Retail banks have been loudly criticised in the press for not passing on the full benefit from an increase in the BoE base rate, and an increase in interest income from loan portfolios.
It could be possible that the highest-paying cash savings rate in the UK right now is actually one of the best UK stockbrokers. As this is how MoneySavingExpert’s best buy table for instant access rates looks at the time of writing:
- Best instant access savings: Chip (Savings app): 3.4%
- Best instant access cash ISA: Santander (Cash eISA): 3.2%
Rates are correct at time of writing but will change in the future.
Clear messaging that investors should weather the storm rather than trade their way to safety
Commission-hungry stockbrokers that generate fees from trading may be incentivised to use the recent banking worries to provoke their investors into trading out of long positions. Followed by the opposite message after the crisis has passed.
Research has consistently shown that retail investors cannot execute market timing as successfully as this advice implies. Selling after a market panic and buying during calmer times is a recipe for selling low and buying high. Retail investors have a well-evidenced knack for performing much poorer than the stock market precisely for this reason.
Ethical firms should not use recent headlines to encourage their clients to trade more volume than normal. Blips like these are part and parcel of ordinary market conditions, and if a downturn in the stock market outlook prompts a complete re-think of your strategy – you must wonder how robust a strategy it was to begin with, considering that downturns are inevitable.
Execution-only stockbrokers cannot provide financial advice, and therefore there are limits as to what brokers can put in writing when providing general guidance to clients. However, the brokers that stand out for us in 2023 are those who have been proactively contacting clients to advise them that history has proven that investors tempted to sell out during turmoil rarely do so to their long-term benefit.