Why choosing the right broker is essential to portfolio management success

December 10, 2020

If you are looking to invest some saved cash in any type of financial instrument, you are most likely going to need a broker to do so. However, with the market being flush with so many brokerages, choosing a broker can be a totally overwhelming process. There are so many different types of broker, all promising to do different things that it can be hard to ascertain which is the most suitable broker for you. 

Here, in this article, we look at factors that you need to consider before settling upon a broker to help you run your portfolio of assets. By being aware of what factors are necessary to be a successful brokerage, you will learn how to choose a broker that is effective and efficient for your own specific needs or requirements.

Fees

When it comes to running your portfolio with a view to making your money grow, something that can have a big impact on that growth is the amount of fees that a broker charges. Brokers charge and structure their fees in various ways to help make their firm money. Depending on how much and what you trade, those fees can add up to making a big difference on your bottom line. Do a thorough investigation of any prospective broker’s fees therefore before signing up to their services. You don’t want all your successful investment decisions to be overshadowed or eclipsed by the sky high fees that erode your bottom line. 

Product Range

Investigating a firm’s product range is imperative before signing up to their services. If you do not know what products a brokerage offers as potential investments, you could become unstuck in future when you intend to invest in them - only to find out that you cannot do so through your current investment account. 

Additionally, it is important to know how well they offer the product range they do have. Some brokers specialise in some products so that you can get the best service possible from them when it comes to those financial instruments. IG, for example, are widely thought of as market leading with respect to being a CFD broker. While some firms offer a broad range of products, which can be at the detriment of expertise. Check therefore, that any products you think you will invest in, are a viable option with your prospective brokerage who can handle your trades competently. 

Processes

Investing with a firm that does not have a slick operational outfit can be frustrating at best. In fact, a brokerage that has ineffective administrative practices can have serious ramifications for your investment choices. If a firm cannot do the basics like opening an account quickly, for example, you can end up being out of the market losing out on gains for your cash. This can be infuriating, but importantly it is not necessary either. There are many brokerages out there that can verify an account or allow you to make swift withdrawals with ease. Investigate your prospective broker to ensure that your final choice is operationally efficient. It will save you many a headache further down the line. 

Software

Trading platforms in our digital age are perhaps the most obvious way that brokers can set themselves apart from their competitors. Each brokerage will have a different piece of software for its clients to use to help run their portfolios and make investment decisions. Investigate, therefore, what your potential broker has in place with regards to its trading platform. Ask yourself, do I find their platform intuitive? Is it available to use on my mobile? And is that mobile software adequate enough to make trades on the go? 

Make no mistake, if you cannot use a broker’s trading software well, you will find making fully informed, pertinent investment decisions that much more difficult. Some platforms offer customisation too, which can help enhance an individual’s usage. Customisation can make what is already a fairly intuitive platform even more user friendly for your own specific needs. 

Added Extras

Some companies offer a whole suite of added extras for customers to make use of to help support investment decisions. Others, however, are a no frills service - often reflected in lower fees. For some, the added extras are just that - extras and not actually necessary. Ask yourself therefore, are you paying for extras that you do not use? Could you find a similar service at a more basic enterprise which is more duly reflected in the fees? 

That is not to say that some of these extras are frivolous. There are many brokers out there that generate some market leading ideas through their investment research. That research could suggest investments that you previously never would have considered, but could make you a great deal of money. Another good extra that can often be invaluable are how to guides. Having a brokerage that tells you how to leverage their investment software for your own gain is important, as is a brokerage that educates its customers on different investment classes and how they work. 

Regulation

It can be easy to overlook, but it is essential to ensure that your chosen brokerage is overseen and regulated by a well revered financial institution. For example, UK based firms should be regulated by the FCA, while US companies should adhere to the SEC. In picking a firm that is regulated by a reputable authority, you are ensuring that they use responsible and trustworthy practices. You can be sure that your money will not be subject to any fraudulent activity as a result - or worse that you could lose it entirely. 

How to choose a broker - key takeaways 

Choosing a broker is probably just as important a choice as an investment decision itself. Getting the right broker in place from the outset provides you with the best possible chance of running a portfolio with ease, which is important given that investing can be a complex activity. As we all invest with the intention of making money, we don’t want to waste time unnecessarily caused by a broker’s inadequacies. Due diligence on a broker may be time consuming initially, but it will could save you both time and money in the future.

Rachel Lee
Having worked at Morgan Stanley and BNYMellon for over 10 years in pensions and investments, Rachel now works as a full-time business and financial writer.

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