Whether you’re a regular investor or you’re looking at opening your first Stocks and Shares ISA, you need a platform for buying and selling your interest in investments. In other words, you need a broker.
Brokers come in all shapes and sizes, ranging from high-end wealth managers to discount online brokers with rock-bottom rates to robo-advisors. The broker you need is one that meets and supports your investment strategy and can help you towards your financial goals.
Choosing the right broker requires more than looking at the trading options, usability of the platform, and even price. Though, all those things are important. To get the most from your fees, you need to find a service that ultimately works for you — and that’s not necessarily the broker who suits your colleague or your neighbour. A good broker is easy to use and offers the level of help you’ll need to get on your way to meeting your goals.
Are you on the hunt for your first broker, or looking for something new? In this comprehensive guide, we cover everything you need to know about choosing a broker in the UK.
Top Brokers in the UK
|1||Interactive Investor is the leading UK broker in the UK and the top choice by Peter Field and the team||Open an Account|
|2||Hargreaves Lansdown is one of the most popular ISA providers, fund supermarkets and investment platforms in the UK.||Open an Account|
|3||The field of discount brokers grows more crowded by the day, but one of the broker platforms that continuously stands out from the crowd is DEGIRO, a European firm famous for its low fees. Investing involves risk of loss||Open an Account|
|4||With their background in CFD trading, eToro has decided to branch out into the world of stock broking. With No Commission, No Ticket fees, No Broker Fees and No Roller Fees on Stocks & ETFs Your capital is at risk. Other fees may apply||Open an Account|
What is a Broker?
A broker can be a person or company who organises and completes financial transactions on behalf of their clients. Brokers can sell different asset classes, and each requires a different license or certification. The asset classes include things like stocks and forex, but you’ll also find real estate and insurance brokers. We’ll leave real estate and insurance brokers to the side for now.
Each financial broker chooses what level of service they provide on a spectrum that ranges from DIY to hands-off to full hand-holding. For example, a full service broker provides clients with data and advice on relevant financial products and executes any transactions as required. They may also provide full financial planning and other services, as required. However, some brokers only execute deals, leaving you to complete the research yourself. These are the DIY brokers, and they’re often low-cost online platforms.
To give advice, a broker must have a license from the Financial Conduct Authority (FCA). If you’re working with a full-service broker and thus a financial advisor, then the individual needs more training and certifications as well as ideally a degree in finance or banking.
Do You Need a Broker?
The answer depends on what your financial goals are both now and for the future. However, one thing is certain: your options are limited when you go it alone. You can buy assets without a broker, but you will need to buy them individually. For example, you can purchase stocks directly from a public company and become a shareholder through a Direct Stock Purchase Plan (DSPP). However, the process can be convoluted at best, and you’ll still find your access limited, particularly in the UK.
The average person will need a broker, but you do have a wide range of options.
If you want to play around in the market on your own and are content with average returns, then you can open a dealing account and trade on your own with little intervention from anyone bar the fees for using the account. A fund supermarket will also allow this. Though, your access will still be limited in some cases. Individuals just don’t have the same access to stock exchanges without a more specialist broker to help navigate, even with a DIY-friendly broker.
Time is another issue that you need to consider. There’s both the long- and short-term time commitment. If you’re not already well-versed in investing, a whip-smart broker can save you both time and money. Over the longer horizon, you can earn even more. Every month that you spend trying out a DIY approach is a month that you’re missing out on growth over the long-term.
Essentially, if you have financial goals and want to grow your money, then yes. You need a broker — and you want one before you make your first trade.
What Kind of Products Do Brokers Offer?
Brokers offer a range of products, but most accounts fall within one of three categories:
- Dealing or trading accounts
- ISA accounts
- Self-invested personal pensions (SIPPs)
All three of these offer options for investing in securities.
However, ISAs and SIPPs come with specific tax-relief benefits available to all UK residents. It’s important to take advantage of these trading accounts first before then diving into a regular dealing or trading account, which may be tax optimised but may not be a full tax-wrapper.
At a minimum, you will pay for your account, but if you work with a full-service broker, then you may access other services. These services will also cost you money in fees.
For example, if your broker provides you with market research, investment advice, or other financial planning services, you will pay for these products individually in addition to the financial products you ultimately purchase.
What Are the 4 Types of Brokers?
In the UK, we have four main types of broker:
- Stock brokers
- Full-service brokers
- Discount brokers
- Forex brokers (retail forex brokers)
Each broker offers different services that sit along the same sliding scale.
What is a Stock Broker?
Stock brokers (or investment brokers) are specialist brokers who solely manage the buying and selling of shares. You need a stock broker because you cannot buy shares as an individual, but you don’t necessarily need to choose a specialist stock broker.
A full-service or discount broker will also suit you, unless you have very specific plans regarding what stocks you intend to purchase.
What is a Full-Service Broker?
A full-service broker is also known as a financial advisor. In this way, ‘full-service’ refers to the range of services and products they can provide for complete financial planning.
Some full-service brokers can also serve as specialist stock brokers, or they might have them on staff. You will find that full-service brokers’ fees are significantly higher than a stock brokers’ might be. Though, some full-service providers have tried to optimise their fees and segment their services so as to appeal to more customers.
What is a Discount Broker?
A discount broker only executes trades on clients’ behalf and according to their instructions. They don’t provide research or planning beyond any freely available or subscription resources on their website. Discount brokers also aren’t licensed to provide finance advice, so there will be little avenues for advice bar basic customer service.
To work with a discount broker, you need to know what you want to trade and when. You pay the broker a small fee to complete the trade on your behalf.
The fee structures differ between discount brokers, but they’re generally lower than a stock or full-service broker because there’s less advice and therefore effort before.
What is a Forex Broker?
A forex broker (retail forex broker) deals currencies. While some forex platforms focus solely on currencies, many of the largest brokers deal on both the stock markets and currency exchanges.
How Do Brokers Make Money?
Brokers make money in a variety of ways, and no two brokers’ fee structures are exactly the same.
In the past, a broker may have made huge money on commissions, but the rise of online trading and online discount brokers have given even the largest brokerages with billions in assets under management a run for their profits. As a result, the landscape has changed dramatically compared to ten years ago. For example, in 2019, Charles Schwab announced it intended to cut brokerage fees to zero; though, it would still assess certain fees.
Even still, there are three primary ways a broker may earn money:
- Brokerage fees
- Commissions and dealing charges (spreads in forex trading)
- Management or advisory fees
Brokerage fees are charged by full-service brokers (among others) as a premium for account maintenance, providing research, and access to investment platforms. They also protect the brokerage in the event that you stop trading for a period of time, during which time the brokerage couldn’t earn money through commissions or dealing charges.
Commissions are sometimes referred to as trading fees, and they’re used to pay for the cost of executing the order as well as for investment advice. These fees tend to be tiered according to the number of trades you completed in the previous month. They serve as a carrot to encourage you to continue trading and prevent dormant trading accounts.
Most brokers use a flat trading fee, but you may find that larger trades fall outwith the commission structure. For example, IG assesses £3 commission per trade when you made three or more trades in the previous month. However, the £3 doesn’t apply to trades over £25,000. They require you to negotiate the rate by phone. (You’ll also then pay a surcharge for completing the trade by phone, but the £40 charge is negligible if you’re considering a trade over £25,000.)
Management fees are charged by companies that provide access to funds. All funds are managed either actively or passively, and the management fees go to the fund manager who guides the fund. Most fees are based on the assets under management (AUM) in funds, but not all firms operate this way.
Because of the shifting landscape, some brokers may assess one or more of these fees and charges. You need to read each broker’s fee structure carefully to fully understand their costs.
Finally, remember that these are the primary fees that are assessed monthly, quarterly, or annually. You’ll also pay fees for additional services, such as same-day bank transfers or rematerialisation. Don’t forget about the additional fees and taxes, like stamp duty or PTM.
What Fees Should You Look For?
What are the average fees assessed by UK brokers?
Fees can swing wildly in either direction. Even though they may only be the difference of a 0 or a decimal point, those small changes can make a huge difference in your gains and losses.
Are There Firms Who Charge No Fees?
If saving money on fees and costs is your primary goal, then you’re probably looking at a discount broker, who usually operates solely online. Unfortunately, trading shares is rarely ever free, unless you become your own broker, which will probably take much more time, effort, and money than simply working through a discount broker.
Online discount brokers have the lowest fees, but you will still pay dealing charges usually based on the number of trades you completed in the previous month.
Remember: at the very least, you need to pay for access to those securities that you’re interested in. So, trading is never free.
How to Find Your First Broker
Your investor type plays the most significant role in creating your short list of potential brokers. The charges and fees and comparative services are likely to play the next biggest role.
But in a world where so many brokers now have to compete with intelligent, low-cost options, making the decision is increasingly difficult. However, you might find that you can eliminate some brokers from your list by using the following initial checklist:
- Your broker has two years of history
- Your broker has a dedicated customer support team
- Your broker processes deposits and withdrawals within two days (and offers a same day option at a fee)
- Your broker also works in other countries
- Your broker speaks your native language
Additionally, you should check each broker on your short list with:
- Financial Conduct Authority (FCA)
- Financial Services Compensation Fund (FSCS)
- Prudential Regulation Authority (PRA)
Any choices on your list must have full accreditation and protection from UK governing bodies.
How to Narrow Down Your Options
Finding the right broker is imperative because you don’t have time or money to waste. Every mediocre decision prevents you from being that much closer to your financial goals.
One of the best ways to find the right broker for you is to ask for a referral from someone who has a similar outlook on finances as you do as well as your trading type (discussed below). You can ask colleagues in your office, including and especially those working in your firm’s finance department. However, if you’re new to investing, then you need a broker who regularly works with new investors.
It’s also helpful to look at the tools and research available to you via the broker’s website and platform. Some brokers excel at providing you with all the information you need to confidently trade in one place: those that do may invest in quality financial journalists who provide the latest news as well as an excellent education team who complete guides for both novice and regular investors. Even as a professional investor, the charts and research tools available at your disposal are critical to your success.
If you can get everything you need on one platform, then you’ll be more nimble and confident in your decision making.
A significant decision will also be in whether you choose a full-service or a discount broker. While there’s a wide chasm between the two brokers’ services, discount brokers are catching up by providing value in ways that aren’t as costly as customised advice.
Who Should Choose a Full-Service Broker?
Full-service brokers were the only real option for decades, and while they’re no longer the only players in the game, they are still holding on to their target market.
You might benefit from a full-service broker if you are someone who is a high-earning individual or have recently inherited a substantial estate. While full-service brokers aren’t as expensive as they once were, they are more inclined to manage wealth accounts. They also provide the hands-on advice needed to strategically invest large sums of money in a somewhat tax-efficient way.
A full-service broker also appeals to those who have a significant amount to invest and who don’t have the time or desire to manage their accounts. In this case, a full-service option is much a matter of convenience as it is an investment strategy.
It’s important not to confuse the services offered by these firms as the kind of hand-holding a new investor might appreciate. Unfortunately, those services will more than a new entrant to the market might earn. Full-service brokers may also set account minimums that today’s average investor might find unattainable.
The good news is that just as full-service brokers have adjusted their fee schedules to be more competitive, so too have discount brokers adjusted their resources to appeal to a broader range of clients.
Who Should Choose a Discount Broker?
Discount brokers (including most online brokers) came to being in the 1970s when the markets were freer for the first time. Charles Schwab was one of the first, and the company sparked a revolution.
The internet has also done this section of the market a favour. Online trading platforms make access even simpler and less expensive, allowing brokers to pass the savings on to clients.
You should choose a discount broker if you are tech-savvy enough to operate a trading platform (either desktop or app) and if you’re primarily (but not only) interested in setting up products like ISAs and SIPPs. Discount brokers also offer cheap dealing and trading accounts, but you may need to acquaint yourself with the tools and resources needed to make decisions on your own time.
Discount brokers also appeal to those who already have professional financial advice available to them and who have little-to-no interest in working with another full-service broker.
Who Should Choose a Robo-Advisor?
Increasingly, more people are finding robo-advisors to be an attractive option. What’s more, some brokerages are increasingly adding robo-advisors as services amongst their other accounts.
However, it’s worth noting that robo-advisors and discount brokers aren’t the same product.
They differ in important ways, including in the way they make investment decisions, the minimum funding requirements, and the fee structures.
Robo-advisors are investment managers powered by machine learning and artificial intelligence algorithms. They pick the investments in your portfolio on your behalf (according to a survey). They then invest and reinvest for you All you need to do is provide a way to fund the account, and then withdraw when you wish.
You don’t have the option to choose your assets with a robo-advisor as you do with a brokerage (either full-service or discount).
Robo-advisors certainly have their place, and there’s no reason you cannot have both a dealing account and a robo-advisor product. However, robos do occupy a different place in investment strategy, usually for long-term horizon investments.
How to Determine Your Trading Type
So, you want to start trading securities online? Before you look for a broker, you need to learn more about your trading personality type and identify your goals. This information will directly inform the type of broker you need and ultimately the individual broker you choose.
Determining your trading type starts by understanding whether you want to trade or invest.
Active trading is a different beast from buying shares and sitting on them. You’ll need so much more from your broker, including access to a superb platform, reasonable dealing fees, and more.
When you trade passively, your needs change, and you’re likely to benefit from products that are more retirement-friendly and come with more advice.
What’s the Difference Between Active and Passive Trading?
The debate between active and passive investing is polarising, but the truth is that both have merits. Your strategy depends on your goals as much as your personality.
Active investing involves a hands-on approach to trading that attempts to beat the market’s average returns by taking advantage of day-to-day and week-to-week price fluctuations.
The benefits of active investing include:
- Choosing stocks strategically without relying on indices
- Option to hedge through put options and short sales
Passive investing looks towards long-term trends in the market. It requires a different kind of personality, one that knows when to hold on to investments and keep a steady hand in the face of turmoil.
Your trading type will determine the kinds of resources you need from your broker, which can include research and education as well as an easy to use platform.
Who Are the UK’s Biggest Discount Brokers?
The UK has a healthy selection of online discount brokers, and a number of them have been around for a long time. Thanks to the internet, fees have plummeted, which makes them more affordable than they were even ten years ago. Increasing competition from big firms who launch discount options also keeps things competitive: if a handful of firms drop a specific fee, it puts pressure on the legacy broker to do the same.
Let’s dive into some of the most prominent discount brokers in the UK.
eToro is an execution-only trading platform with deep pockets and an American mindset. That’s why you’ll see Alec Baldwin in their adverts and all over their website. The company opened its doors in the U.S. in 2007 and launched its WebTrader products in 2009. Though, it wasn’t until July 2013 that eToro introduced stocks to its platform.
Today, you can purchase:
eToro has two big selling points: it’s social trading application, which allows you to copy top traders’ portfolio performance with the click of a button, and it’s 0% commission fees on stocks.
AJ Bell YouInvest is the discount arm from AJ Bell. It’s one of the UK’s largest platforms and it has 241,000 customers and £54.7 billion in assets under administration.
With YouInvest, you can open a dealing account for general trading as well as ISA and SIPP products.
YouInvest also suits novice investors who want to put money in the market but who aren’t yet confident enough to trade. The company sells its own funds as well as ready-made portfolios for those who can’t or prefer not to go on the hunt for the right assets for a unique portfolio.
IG Markets Ltd
IG is a professional execution-only trading platform suitable for professional investors and novices alike thanks to its free demo account. IG opened its doors in 1974 and now has 178,5000 clients investing in more than 17,000 markets around the globe.
Interactive Investor (ii) is a 20-year-old platform and one of the largest brokers in the UK with over 300,000 customers, 1 million users, and £30 billion in assets under administration.
ii is a flat-fee platform that offers trading accounts as well as ISA and SIPP products. Its target market is the DIY investor, and it focuses heavily on providing the educational tools and latest content to support that demographic.
XTB is a global execution-only broker with an emphasis on forex CFD trading. It caters to advanced traders, but the nature and risk of CFD trading means it also runs a trading academy that offers personalised education, including dedicated account managers and one-to-one mentoring.
Like XTB, IC Markets is a forex CFD provider with a focus on both new forex traders and active day traders. IC Markets was incorporated in 2007 in Australia by a team of CFD and forex providers.
Today, the platform promises access to pricing that is only available to large investment banks, giving individual day traders unprecedented opportunities. Although IC Markets focuses heavily on its technology, it also emphasises its commitment to being a low cost provider.
The platform also offers demo accounts for investors who want a tour and for those new to the market.
EQi, formerly Selftrade, is a broker in flux as it changes its branding and reinvents some of its core products. The execution-only company offers ISA, SIPP, and dealing accounts with access to stocks and shares, funds, ETFs, trusts, and more complex instruments.
Customers who open an EQi Lifetime ISA also enjoy a complimentary dealing account. Though, there tend to be low-to-no management fees on dealing accounts among discount brokers generally.
Who Are the UK’s Biggest Full-Service Brokers?
Full-service brokers were once a staple of UK finance, but their competition from both discount brokers and the rise of the robo-advisor has left them scrambling to reinvent themselves or even caused them to shut their doors altogether.
Barclays Stockbrokers Ltd
Barclays Stockbrokers is part of Barclays bank and it offers both advisory and execution only services to customers. Today, the bank arm is better known as Barlcays Smart Investor, and it offers investment accounts as well as an Investment ISA and SIPP product.
Bestinvest (Brokers) Plc
Bestinvest offers advisory and discretionary services with a focus on retirement products. The company is a part of Tileny, and it serves as a more accessible version of Tileny’s wealth management services. The Bestinvest investment accounts come as a DIY package as well as through ready-made portfolios. It’s services cater more towards new investors than wealth accounts.
Canaccord Genuity Wealth Management
Canaccord Genuity offers execution only, advisory, and discretionary services to clients through its wealth management services. The company serves both UK and European clients and has £28.1bn in assets under management.
In addition to its financial planning services, Canaccord Genuity offers customised investment management services that include:
- Portfolio management
- Proprietary investment funds
The company also caters to U.S. citizens who are resident in the UK, a demographic many typical brokers tend to exclude.
Hargreaves Lansdown provides both execution only services as well as advisory services, but its recent focus has emphasised its commitment to low-cost services. Over its 35 years in business, HL has won 1,136,000 UK clients who have accounts worth more than £85 billion.
The company provides private retirement fund accounts, including ISAs and SIPPs on its digital platform as well as a low-cost dealing account. It’s advisory services are optional, and all begin with a free consultation. There are 81 advisors available across the UK.
Investec Wealth & Investment
Investec Wealth & Investment is a bank and wealth manager. They provide services that include execution only as well as advisory and discretionary services.
The company began life in South Africa in 1974 and entered the UK markets and 1992 when it implemented a new company structure and listed itself on both the London Stock Exchange as well as the Johannesburg Stock Exchange. Its current European headquarters is in Dublin.
The Share Centre Limited is a UK-based broker offering execution only, advisory, and discretionary services. Founded in 1990, The Share Centre is part of Share plc and serves as one of Britain’s stockbroking services for both private and corporate clients.
The Share Centre offers:
- Share dealing accounts
- Certificate dealing
It also offers self-selected stocks & shares ISA as well as junior investment accounts.
The service caters to new investors as well as investors who have less to invest into the markets. It waves the dealing option fee for its standard dealing account option.
Thomas Grant & Company Ltd
Thomas Grant & Company is an advisory and discretionary broker founded in 1993 that offers:
- Full dealing services
- Equity derivatives
- Corporate services
Those who need it can also seek out full probate services and estate planning options.
Tilney Investment Management
Tilney Investment Management is an advisory and discretionary broker with 55 UK offices and £24bn in assets under management. Services offered include:
- Financial planning
- Investment management
- Investment advice
The firm also hosts specialist advice for accountants, lawyers, executives, sports professionals, and medical professionals.
Finding the right broker is the difference between meeting your financial goals and watching your money disappear through your hands, either through poor investment choices or unnecessary fees.
Unfortunately, there’s no such thing as free access to the markets because even where it’s possible to purchase single assets, the process is both laborious and expensive enough to put even the most committed investors off trying it again. What’s more, a good broker is worth their fees, even if you dislike paying them.
Finding the right broker requires you to understand both your goals and your investor type. Because while many UK brokers offer similar services, even slight variations in their platforms and fees can get in the way of generating better returns on your investments.