Monday, 1 November 2010

How to buy shares in UK?

Follow our guide to dealing on stock market

You have to buy shares through a stockbroker, so the first thing you need to do is decide which type of broker you want.
You also need to work out whether you want to deal by post, over the phone or through the internet, as many people now do.
Stockbroking services
The Rolls-Royce service is a full advisory service, where the broker will look at your individual circumstances and devise a strategy to suit your needs, monitor your investments and make suggestions on buying and selling shares. However, you still have the final say.
A variation on this is a discretionary service, where a broker may buy and sell shares on your behalf without asking for your approval first. This is also a highly tailored service and, unsurprisingly, can prove expensive.
These days most people are prepared to do their own research, which, after all, is half the fun of investing. If you are in this camp, you need to look for an execution-only stockbroker.
Execution-only means that the broker will simply take your order and execute it for you. These brokers cannot provide any advice on your decisions, but many offer all kinds of research and online tools for everyone from the novice to the expert.
The verdict
Most people opt for an execution-only service because it is the cheapest and because some brokers will not take you on as an advisory or discretionary client unless you have a substantial amount to invest, sometimes as much as £100,000 or more.
If you do want someone to hold your hand - always a good idea when making an investment - you could look among the smaller or regional brokers, who tend to have less daunting minimum requirements.
You could also enlist the services of an independent financial adviser (IFA), who could provide help with the buying decisions, after which you could use an execution-only service. You could also join an investment club, where you could share ideas with other investors.
How to find a broker
To a large degree, finding the right broker will depend on your individual requirements, but there are four factors you should consider: quality of information, speed of execution, markets available and cost. Generally speaking, the better the information on offer, the more you will pay. Use the London Stock Exchange’s. locate-a-broker service to select one to meet your needs.
Postal, phone or internet dealing?
Telephone and internet services may give you access to instant dealing, while postal dealing takes a couple of days longer. Expect to face credit and identity checks when dealing for the first time.
Cost
Brokers' commission is charged in one of two ways, either as a flat fee or as a percentage of the deal. Internet dealing is cheapest, with some online brokers charging less than £10 a trade. You can compare dealing charges by going to a website such aswww.moneysupermarket.com.
Certificates or paperless shares?
Most brokers now hold shares for clients in paperless form. This form of ownership dispenses with cumbersome certificates and allows deals to be settled, that is paid for, within three days.
But there is a downside. Your shares are held in a nominee account managed by your broker and the name of the ultimate owner is not known to the company. This means that there can be no direct communication between you and the company, and you must rely on the broker to pass on annual reports, dividends and details of any share perks.
You can opt to hold shares in certificated form to be sure of receiving all communications from the company. But you will probably have to pay a higher fee when you trade and settling your deal may take longer, perhaps ten days. However, this is the only option if you want to hold shares that offer perks.
Trading in overseas stocks
Buying overseas shares directly has been both difficult and costly for private investors in the past, but that has now changed. Investors can mine a rich vein of information on overseas shares via the internet, while the London Stock Exchange’s International Retail Exchange has made it cheaper to trade on overseas markets.
You can gain access to companies listed on European and US exchanges through UK brokers, though you will pay more to trade than if you were buying UK shares.
Health warning
Buying single shares that do not form part of a balanced portfolio is a risky business and experts advise against it because you should not put all your eggs in one basket. If you have neither the time nor the money to construct a rounded portfolio of shares (at least a dozen and ideally more than 20), you may be better off buying collective investments such as unit or investment trusts.

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