5 Questions You Should Ask Before Choosing Your Stockbroker

Do you want to invest in the Philippine stock market? After attending our FREE Stock Market Investing for Beginners (Module 1) seminar , a lot of our participants said yes. They wanted to open an account right away, but they were not sure how to pick the right broker. I gave them 5 questions they should ask first before choosing their stockbroker. Five questions after the jump!

5 questions you should ask before choosing your stockbroker
1. Do they have a minimum deposit, and can you trade beyond the deposit you have with them?
Some brokers require you to deposit money with them before you open an account. The amount can be anywhere from P 5,000 to P 50,000 to even P 1,000,000. Unlike banks, this deposit does not earn interest and there is no maintaining balance. This is simply your "wallet" or credit with your broker. If you ask your broker to buy stocks for you, they will get from your deposit. If you no longer have free cash in your account, you usually either have to sell existing stocks and turn them into cash or deposit more money into your account before you can buy new stocks. This is especially true for most, if not all, online brokers.

However, there are some brokers that will allow you to buy stocks beyond the free cash that you have with them, especially if you already have a good track record with your broker. They will just ask you to pay T + 3 (or within three trading days after your transaction). Personally, I would prefer to have one account with a broker that allows me to buy stocks beyond my deposit. This gives me the flexibility to just add more funds as needed, rather than parking my money with my broker whether or not I intend to invest it.
2. How much commission do they charge?There are three types of brokers: full service, discount, and online.

Full service brokers usually charge the highest in commission, usually from 1 to 1.5%. In exchange, they should provide value-added service to their clients. Most full service brokers have messengers that are willing to pick-up and deliver checks to your residence or office for your convenience. They should also have a research department, and should be able to provide you advice on which stocks to buy and at what price. If your investments are small, you should be proactive in asking your broker for research and advice. If your investments are big, chances are the broker will have the initiative to call you. It is also likely that if your investments are in the millions and you trade frequently, you can request your broker to lower their commission rate.

Discount brokers charge low commissions, but are usually just order takers. They will buy or sell stocks for you but will not give you advice. I spoke with a lady yesterday who was complaining that her broker does not give her advice, so she ended up buying Cebu Pacific at initial public offering (IPO) price and losing a lot of money. I asked how much she was paying her broker, and she said .005%. I was surprised with the low commission rate. Chances are she has a discount broker. I would not recommend discount brokers for beginners.

Lastly, you have online brokers. They charge low commissions, usually at 0.25% of your transaction cost. Most of them do have research, but they are all uploaded online--it is up to you to read and interpret them. It is also up to you to input and execute your orders--so computer literacy is a requirement. One advantage with online brokers, however, is the wealth of free information most of them provide. Most of them have built-in charting software, for those who know how to use technical analysis (enroll in our technical analysis seminar if you don't know how). Some also provide historical information that is useful to those who know how to do stock valuation (clickhere to inquire about our stock valuation workshop). Some online brokers now also have apps for your ipad, iphone and android devices so you can check your portfolio on the road and trade on the go.

Personally, I have one full-service broker for my long term investments and one online broker for the stocks that I want to trade short to medium term.

3. Do they have a research department, and do they give advise on which stocks to buy ore sell?

Most online brokers have stock recommendations based on fundamental and/or technical analysis. It is also really easy to use because it is usually in table format, with advice on whether to BUY, HOLD, or SELL.

For full-service brokers, some even have model portfolios which they recommend to their clients (i.e. which stocks to hold and at what percentage, whether or not it is good for short term or long term investments, etc.) I have heard of some full-service brokers who go as far as assigning their staff to mining sites if they are monitoring mining stocks, for example.

As a caveat, not all research and advice are created equal. If you have friends who are existing clients of said broker, please inquire with them whether or not they have actually made money from their broker's recommendations. If they lose money more often than not, then it might be a good idea to scout for other brokers.

4. What are their payment methods?
This is an important question if you are a busy person, if you are based outside Manila, or if you are an OFW. How easy is it to deposit money into your account, and to withdraw from it?

Ideally, your broker should have several bank accounts which you can deposit to. It would be best if you can transfer money to them using your bank's online portal.

It is also important to know how easy it is to withdraw money from your account. Some online brokers require you to fill up a form online and send a scanned copy to them before you can withdraw money from your account. Others have cut-off times, after which your withdrawal will be scheduled for the next day. Others make it very easy for you to withdraw money from your account, simply ask them to deposit it for you.

5. How is their customer service like?
If they are snubbing you while you have yet to open an account, chances are they will also treat you poorly once you are already their client. As a beginner, you would want to open an account with a broker that answers all of your questions promptly and patiently. You would also want a broker that make you feel like your business is valued--no matter how small or large your investment is.

Open your account today. 
So what are you waiting for? Open an account with a stockbroker today. To get our assistance in choosing the right stockbroker for you, call us at 975 9559. Don't worry, as Biz Whiz provides that service for free.

Want to learn more?
Still not confident about opening an account? Learn more about stock market investing first. Visithttp:///www.bizwhiz.com.ph for our upcoming schedules and course outlines, or click here to inquire.

For those of you who already have brokers, please share on the comments section your review of your brokers. How is their research and how good or bad are their recommendations? Are you happy with their customer service so far? How easy is it to deposit / withdraw money from your account? I would personally be happy to hear from you. I will post my review of my own brokers in a future entry. :)

Until then, happy investing everyone!  

Estelle Ople Osorio
Managing Director
Biz Whiz Business Training and Consultancy

---