Choosing a Broker
To physically buy and sell shares on the Australian Stock Exchange you have to be a stock exchange member and as this is not practical or possible for most of us we have to utilise the services of a broker.
Gone are the days of hardcopy share certificates which means investors need to hold their share investments within the structure of the CHESS system.
Choosing a broker is an important investment decision for a variety of reasons. Issues you may want to consider are:
- Do you need a full service, discount or internet broker?
- Do you need more than one broker?
- How do you decide which broker is best for you?
- What online services does the broker provide?
- What costs are involved?
Your specific needs as an investor are the first consideration when you are choosing a stock market broker. For example, if you want to receive advice on which stocks to buy or sell and aren’t comfortable with making trades on the internet, then you may need a full service broker. On the other hand, cost may be an issue so you may want to consider an online broker.
Morningstar and the ASX have an excellent article available on How to Choose a Broker which takes you through the important things to consider and also explains the process of what physically happens when you buy and sell. This article is well worth a read.
You may be interested in looking at Online Brokers Australia which might also be helpful.
The ASX also has a Find a Broker search function available. Find a Broker helps you select the products, services and types of investments you are looking to get from a broker. By filling in the search, the ASX will provide you with a list of brokers that match your investment needs.
As your experience grows or your investment needs change you may decide to change your broker. Changing brokers can be straightforward, just make sure the account with your 'new' broker is in exactly the same name as the one with your 'old' broker and discuss with both how to manage the process, usually it is just a matter of completing a form authorising the transfer of shares from one broker to another.
There are two ways that you can hold shares - on the CHESS subregister under a Holder Identification Number (HIN) or under an Issuer Sponsored arrangment where you are issued with a Security Holder Reference Number (SRN) for each parcel of shares.
CHESS stands for Clearing House Electronic Subregister System. You can elect to have a broker or a margin lender act as your CHESS sponsor and you will have one HIN for each broker that sponsors any of your shares. You can enter into a sponsorship agreement with more than one CHESS provider.
Being registered in the CHESS system makes it easy to sell a share as you don't need to provide the broker with the relevant SRN. You will also recieve CHESS statements at the end of each month if there have been any movement in the balance of your holding. Using the CHESS system transactions are registered on this electronic settlement and transfer system and each company’s share registry is automatically advised of ownerships changes.
The ASX has a good FAQ article on CHESS and explains the difference between HIN’s and SRN’s. For those investors who hold shares gained from a float and have never dealt with a broker before, this article is definitely worth a read.