Choosing a stockbroker is like choosing any other service provider in other parts of your life. You’ll be looking for good service, decent functionality and that all-important value for money.
In this article, we’ll look at which UK stockbrokers stand out as worthwhile choices for frugal UK investors. The criteria we’ll focus on are:
- Investment range – does the broker offer investment options favoured by low-cost investors?
- Competitive fees – does the broker charge rock-bottom fees that are industry-leading?
The brokers most suitable for frugal investors
Before we dive into the detail behind our reasoning, here is our shortlist of brokers matched to frugal investors:
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
The investment strategies favoured by low-cost investors are:
- Dividend growth investing
- Passive investing strategy
- Value investing strategy
Let’s look at the different assets used to build these portfolios and examine whether this restricts the range of UK brokers to choose from.
Dividend growth investing typically involves holding 15 – 20 individual shares that pay attractive dividend yields. These are often members of the FTSE 100. Examples include BP plc, and Vodafone PLC, which yield 3.8%, 3.5% and 7.6% respectively at the date of writing.
By sticking to blue chip companies, frugal dividend investors can keep their broker options open, because virtually every firm listed in our full list of UK brokers will offer a market for these stocks.
Passive investors aim for index funds, including exchange-traded funds for their investment needs. This could involve a 3-4 fund strategy (Developed world equities, Bonds, Property, Emerging Markets), or something much simpler such as an ‘all-in-one’ fund like Vanguard’s LifeStrategy series.
This is where investors will need to do their research. Not all brokers offer a wide range of funds for sale. Many will allow ETFs (on the basis these are traded like stocks), but only give access to a shortlist of approved mutual funds, meaning the Vanguard Lifestrategy funds like 100% Accumulation (ISIN: GB00B41XG308) may not be available.
Value investors could take an active or mostly-passive approach. An active approach will involve picking both small and large-cap stocks to create a basket of individual companies. A more passive approach for the individual would look like an equity mutual fund with a ‘factor’ tilt towards value companies.
Your ability to trade small-cap stocks, particularly those listed on international stock markets should not be taken for granted. If you have a clear idea of which companies you’d like to buy before you open a brokerage account, try looking up the security on the brokerage website in advance to check whether it’s a tradeable asset to avoid potential disappointment.
Our comparison of UK stockbrokers shows that the platforms with the widest market choice are interactive investor (40,000+ stocks), AJ Bell (est. 20,000+), and Hargreaves Lansdown (est. 20,000+) which will feel like a limitless choice.
Commission-free trading apps like eToro, Trading212, FreeTrade and Dodl tend to offer fewer tradeable assets, to increase efficiency and keep overheads low. However, our favourite broker eToro still offers a range of 3,117 stocks, which should still be enough to keep an active value investor happy.
Now for the good part. If you’re a truly frugal investor, you’ll want to be certain you’re choosing the broker that will charge you the least, as every investing cost is effectively an investment loss. The fewer fees you’ll sustain, the higher the value of your portfolio, all else being equal.
Let’s start with general account fees. These are also called platform fees, admin fees or service fees. Its name may differ but what is consistent is how difficult it is to minimise this fee once you join a platform as it is often a flat fee or based on the value of your assets. For this reason, joining a broker with a low fee in the first place is the only way to guarantee good value.
eToro, our 2023 Stockbroker of the year award winner, does not charge a general account fee. Whether you trade, or don’t trade, eToro won’t charge a monthly, quarterly or annual charge just for having an active account with them.
This makes it an ideal match for frugal investors who want to pay the perfect amount – zero.
Naturally, other brokers that charge a fee will be less appealing but if you do go down this route – be sure to calculate and compare the real £ fee you’ll be charged based upon your account value and type of investments.
That’s because some firms charge flat fees, like interactive investor, while others like Hargreaves charge different fees depending on whether you’re holding individual shares or funds. So comparing the headline % or £ charges at a glance might not always yield the most accurate answer for your individual circumstance.
A broker charges a trading commission on each buy or sell order that they execute on your behalf. In the history of the evolution of stockbrokers, commissions were traditionally the main source of income for brokers, and began as high as 5% of the value of a trade.
Luckily for us penny-pinchers, commissions have been the subject of an industry-wide price war, as covered in our stockbroker industry bulletins. This has led to new fintechs offering trading of stocks for zero commissions.
eToro offers zero-commission on stock trades to all UK clients, on its full range of stocks.
In conclusion: the best broker for frugal investing
In conclusion, eToro is the best broker for frugal investing strategies that involve individual stocks, such as value investing and dividend investing. With no general account fee, and no commission on trades, the only costs a frugal investor will incur are foreign exchange costs and the market bid/offer spread, which both cannot be avoided.
For passive frugal investors in favour of funds, eToro won’t be suitable as it does not offer a wider range of mutual funds. Instead you may want to consider Vanguard Personal Investor, which charges an account fee of just 0.15% per year (capped at £375 for accounts worth over £250,000) and offers an impressive range of funds managed in-house at industry-leading ongoing charge rates.