London Stock Exchange stockbroker charges are largely influenced by tow main factors. These are the type of service on offer and the stocks and shares being dealt in.
The regulations imposed by the Financial Services and Markets Act (2000) forces stockbrokers and other professional advisers to inform clients of the charges being made. Contract notes, which display the nature of stock broker charges being made must be issued 'promptly' which usually means the same day as the trade.
Clients and advisers must have a written agreement so that there is no doubt as to what is required and being offered.
There are essentially three different levels of service and therefore multiple possible London Stock Exchange stockbroker charges. The service levels are:
Discretionary management
Advisory management
Execution only
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Discretionary management is the name given for to an advisor who manages
a clients money under pre-arranged criteria. These criteria would
include the clients thoughts and requirements relating to risk levels,
tax position and income or growth requirements. Clients will not be
involved in the day to day running of their investments but will be kept
informed with regular portfolio valuations.
Services like this can be fee or commission based. It is quite common for the manager to charge a fee based on the value of funds being managed. This fee will often be a percentage (eg. 1% pa). Commissions may also then be charged on each transaction.
Advisory management is a service where an adviser discusses or reviews the investments of a client on a regular basis or as required. This could relate to formal portfolio management or trading in individual shares.
The client will make the final decision to buy or sell. The adviser will normally supply research materials relating to markets, sectors and individual firms.
Such services used to be the norm but now are, happily, rare. Very few investors have the time or relevant expertise to appraise investment decisions and even less are willing to pay for the service!
Finally, execution only is a 'dealing only' service where no advice is offered. This means that the investor bears all responsibility regarding investment decisions. The instructions to deal are usually made online or by telephone. The service is commission based and usually very low cost to the investor is now the mainstay of most stockbrokers.
Commission rates vary (as noted above) depending upon what sort of security is being bought or sold. The largest fees generally relate to foreign stocks and convertibles. Government securities (gilts), loan stocks (a type of bond or debt instrument) and PIBS (permanent interest bearing shares) are usually the cheapest.
For obvious reasons, it is difficult to give an exact guide as to the stockbroker charges likely to be paid as each transaction on the London Stock Exchange is different, but I hope that this information will at least offer useful guidance as to the what and how they work.
How Do Nominee Accounts Work?
When buying or selling shares through a stockbroker on the London Stock Exchange nominee accounts are used by many investors. A nominee company will be run by a stockbroker to own shares on behalf of investors.
Legally the shares belong to the investor as it is the investor who has responsibility for the taxes to be paid on any dividends or capital gains. However, these investments can be transferred into or out of the nominee account or bought and sold by the company. The investor will still receive contract notes to confirm the actions of every trade.
Nominee accounts are used to prevent shareholders from having to deal with the paperwork and share certificates. Many stockbrokers encourage their clients to use nominee services for ease. This process was speeded up by the introduction of CREST and then given extra suupport by the arrival of T+3 settlement. T+3 means that the financial arrangements are settled three working days after the trade. Obviously, it can be very difficult (if not physically impossible) for an investor to settle paper transactions through the post in just three days.
The nominee company can collect dividends
on behalf of the investor or they can be paid directly into the
investor's bank account. Some stockbrokers will charge for these
services.
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For investors who trade actively on the London Stock Exchange or are not
very organised with their paperwork, the use of a nominee account will
prove to be invaluable. However, the additional costs do add to the
expense of a trade and so nominee accounts are of most use to larger
investors.
A legal separation
It is probably easiest to imagine the nominee service as being similar to that offered by 'custodians' (defined here) to fund management firms. It is a legal separation of assets from a stockbroker.
This is done to ensure that client assets are not at risk from the poor trading of the brokerage. Otherwise, if the brokerage was holding securities for clients and something unfortunate were to befall the company (a legal claim, bankruptcy etc), client assets could be considered to belong to the firm and be used for the wrong purposes.
Just the one for me...
Many investors actually operate a personal strategy of using both a nominee account and holding shares in the same company directly.
Why do this?
It turns out that when a brokerage nominee account holds shares, they are all essentially considered to be one holding, and the brokerage keeps the exact reecords of who owns what and how many. When it comes to annual report time and the opportunity to vots as a shareholder, the brokerage will receive just one report and one chance to vote. Therefore, many long-term owners in a company's shares will own just 1 share directly to ensure they get to see all the paperwork that the company sends out.
To read more about the LSE and FTSE, please visit the following pages:
Learn More About The London Stock Exchange
London Stock Exchange Information
London Stock Exchange History
Alternative Investment Market
London Stock Exchange Liquidity
London Stock Exchange Listing Rules