UK Portfolio - Part 5 - Broker Selection

The final step in the UK portfolio revamp required selection of an appropriate broker through which mutual funds or ETFs could be purchased.

Since I was not very familiar with the UK scene, initially my search for a broker involved Google searches. It would have been far quicker had I known about the GoodWebGuide of Share Dealing brokerages, which contains a brief synopsis and rating of most if not all the online brokerages available in the UK, though be sure to follow the links to each company website as I discovered several instances of inaccurate or incomplete information in the synopsis. The main criteria I used included:

• low cost - per trade costs, monthly/quarterly/annual account administration costs, account closure or transfer costs. Since the investment strategy will involve few trades (once annually amongst a maximum of eight holdings) slightly higher trading fees may be offset by account inactivity fees or other costs.
  
• PEP, ISA and regular accounts - being able to have all types of accounts at one brokerage simplifies life in many ways, such as doing summaries/portfolio views, transferring money from a regular account into an ISA, as is planned to be done for the next number of years
• customer service - ability to phone and readily get explanations or assistance from a human being, a capability that was tested informally as I collected information from websites; for instance, eTrade quoted the cheapest prices but I got into voice mail wilderness trying to contact them while SelfTrade posts their phone number everywhere on their website and polite knowledgeable staff answered the phone quickly, a very handy thing whenever a less than expert investor is involved, as in this case. Some low trading fee brokerages, such as iDealing don't even offer phone support, only email support.
• direct foreign market access - ability to trade directly on foreign markets, especially the US' NYSE and Amex for ETFs due to the paucity of ETFs in the UK. This was a secondary objective in this case since adequate diversification could be achieved within what is available on the London Stock Exchange (LSE).
  

Some criteria that had no real importance but might for others with different investment strategies include:

• research tools - availability, breadth and quality of such tools as stock or fund screeners and research reports, charting tools, market news and market activity streamers
  
• discounts for frequent trading

Here are comments on some of the main players and the reason that they got disqualified:

• HSBC - no ISA account admin charge, nor any account closure or transfer fees but requires the opening of an HSBC bank account
• Abbey Sharedealing - the GoodWebGuide has more information than the Abbey website itself - pathetic!
• Barclays - charges account inactivity fees
• iDealing - low trading costs but offers only email support and website has very skimpy info
• Royal Bank of Scotland - higher trading, account admin and transfer/closure costs
• Lloyds TSB - higher trading fees and higher account admin costs
• eTrade - low trading fees but trying to talk to them is voice support hell
• Halifax Sharedealing - reasonable trading fees but higher admin costs
• TDWaterhouse - offers direct access to US NYSE, Amex markets, which means access to the wider range of ETFs available there, but I wasn't initially aware of TDWaterhouse and had already begun the process of opening accounts and transferring funds into SelfTrade so decided not to back track; maybe next year it will be worth switching.

In the end, it was SelfTrade that came out on top. The company's fees are in the middle for trading and low for account administration. By happy coincidence, SelfTrade has been offering no trading fees on purchase of LSE-quoted ETFs till May 31st, which is exactly suited to the ETF orientation of this portfolio. Best of all, SelfTrade wins on customer service: the phone gets answered quickly by knowledgeable, polite people both before and after one becomes a customer.