Investing in shares is quite easy nowadays - at least, it’s a lot easier than it used to be. The process once involved high brokerage fees, up to 10% of the trade, and you had very little choice but to go through a physical stock broker.
With the rise of low-brokerage online trading platforms and the plethora of micro-investing apps - you have all the ingredients to become the next Wolf of Wall Street. The hard part now is knowing what to invest in.
A ‘full-service’ stock broker might be helpful for you if you have the money ready to invest, but you don’t know where to invest it or simply don’t have the time. But is it worth the cost? Or have micro-investing apps, online share trading platforms, and the internet made old-school stock brokers obsolete?
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What is a stock broker?
You might hear ‘stock broker’ and immediately think of the sharks on Wall Street, but there are actually two distinctly different types of stock brokers: full-service stock brokers, and online stock brokers.
When thinking of a stock broker in the traditional sense of the word, you’re probably thinking of a full-service broker. In a nutshell, full-service stock brokers handle all the buying and selling of stocks for you. Instead of needing to go in blind and invest your money in ways you don’t really understand, a full-service stock broker’s job is to get an understanding of your financial goals and invest your money in ways that will achieve said goals. For this reason, they must have a reasonable basis to make recommendations to you and disclose any interest they may have in it.
On the other hand, an online stock broker, also known as an online trading platform or a discount stock broker, is simply a place for you to buy and sell stocks yourself. Using an online broker means you won’t receive personalised advice and no one will make the trades for you. For this reason, using an online broker, like CommSec or CMC Markets, is the much cheaper option of the two. A lot of the time, you’ll only need to pay brokerage fees when making trades (buying or selling) - the account itself is usually free. Since it’s just a platform for you to invest, you might not think of it as a ‘stock broker’, but technically it is.
Stock brokers vs micro-investing apps: What’s the difference?
But is there anything in between a full-service stock broker and an online stock broker? The closest thing to a ‘middle ground’ here would be the newly-thriving, highly popular handful of micro-investing apps in Australia.
Micro-investing apps have elements from both types of stock brokers, without technically being one. Increasingly popular among young Aussies, micro-investing allows investors to deposit small amounts of money into an investment portfolio over time, rather than the large amounts of money needed to trade normally. While you don’t receive personalised financial advice, you’re usually given a set of portfolios to choose from so you’re not left to fend for yourself and invest randomly.
There are four main micro-investing apps currently available in Australia: Raiz, Spaceship Voyager, CommSec Pocket, and Sharesies. Most of these apps work by giving the user options of portfolios made up of exchange-traded funds (ETFs) to choose from - rather than individual stocks - taking away the confusion around what to invest in. Instead of charging brokerage fees, some apps charge ‘account-keeping fees’ (Raiz & Spaceship), while others charge low brokerage fees (CommSec - $2 & Sharesies - 0.5% or 0.1%).
While you could invest in ETFs through a stock broker, doing this will often come with a much higher cost than using a micro-investing app. Using Raiz as an example, typical account-keeping fees are $3.50 per month with a minimum investment required of $5. Investing through a traditional trade would typically require at least $500, with brokerage fees ranging anywhere from $10 to $30 (although these are typically only paid when buying or selling, rather than monthly).
So, generally speaking, using a stock broker might be better if you’re looking to invest in individual shares with larger amounts of money. If you’re looking to trickle-feed your money into the stock market, investing in ETFs through micro-investing apps might be more up your alley.
How much does a stock broker cost?
As we’ve mentioned, a full-service stock broker is generally more expensive than using an online stock broker, but by how much?
The cost of a full-service broker is typically marked as a percentage of the trade. Most brokers charge a minimum fee, for example 2.5% of $5,000 (on a relatively 'small trade), or 0.1% for a large trade according to Moneysmart. This is why relatively small trades can be quite expensive when using a full-service broker. On the other hand, many online brokers often charge around $20 per trade.
In my opinion, this isn’t a very compelling overview of the costs as there is still a lot of unknowns around specific pricing. In the table below, we highlighted the standard costs of several online stock brokers compared to several full-service brokers based on brokerage costs alone. This should hopefully provide a clearer difference and comprehensive understanding of the costs involved with each option.
|
Full-service stock broker brokerage costs |
Online stock broker brokerage costs |
|---|---|
|
Argonaut: The higher of $100 or 1% of the transaction value |
amscotOnline: ValueRate - $11.00 or 0.088% (whichever is greater) TraderRate - $33 or 0.066% (whichever is greater) |
|
Bell Potter: Maximum brokerage charged is 3% of the transaction value |
Bell Direct: First 10 trades per month - $15 (up to $10,000) 11th to 30th trade - $13 or 0.08% 31st trade onward - $10 or 0.08% |
|
CCZ Statton Equities: Trades up to $8,000 - $120 $8,000 to $50,000 - flat 1.5% Trades over $50,000 - flat 1% |
CMC Markets: Less than 11 trades per month - $11 or 0.10% (whichever is greater) 11 to 30 - $9.90 or 0.08% (whichever is greater) More than 30 trades - $9.90 or 0.075% (whichever is greater) |
|
Evans & Partners: 2% for first $50,000 1.5% for next $50,000 1% for trades over $100,000 |
CommSec: For trades settling into a CBA account: Up to $1,000 - $10 Over $1,000 to $10,000 - $19.95 Over $10,000 to $25,000 - $29.95 Over $25,000 - 0.12% For trades settling into another bank account: Up to $10,000 - $29.95 $10,000 and above - 0.31% |
|
Morgan Stanley: Generally ranges from nil to 2% (depending on the value of transaction) |
nabtrade: Up to $5,000 - $14.95 $5,000.01 to $20,000 - $19.95 Over $20,000 - 0.11% |
|
Morgans: Trades from $0 to $5,000 - 2.75% $5,001 to $15,000 - 2.2% $15,001+ - 1.75% |
Opentrader: Up to $5,000 - $5 $5,000 to $10,000 - $10 $10,000 to $15,000 - $15 Over $15,000 - 0.1% |
|
Shaw and Partners: Usually between 1% and 1.75% (subject to minimum charge of $125 per trade) |
Sequoia Direct: Up to $1,000 - $9.50 $1,001 to $49,999 - $22 $50,000 to $99,999 - $44 Greater than $100,000 - 0.055% trade value |
Source: Australian Stock Exchange (ASX), firm websites & individual broker financial services guides. Pricing data collected as at 12 November 2021.
From our research, it is clear that full-service brokers are more expensive than online broker platforms based solely on brokerage fees. This is without taking into account other fees charged, such as the initial consultation fee, ongoing management fees, and administrative fees, which might apply when using a full-service stock broker. All in all, full-service stock brokers are significantly more expensive than online brokers.
Pros and cons of full service stock brokers
While full-service brokers are more expensive, you get what you pay for, right? Why do people still choose to use full-service brokers given the hefty price tag? To get a better idea of when you might choose a full-service stock broker over an online broker/micro investing platform, let’s weigh up a few of the pros and cons.
|
Pros |
Cons |
|---|---|
|
You have a qualified expert to personally advise you on how to invest your money in ways that suit your financial goals |
It’s more expensive, especially if you plan on making small trades |
|
You don’t need to monitor your investments; your stock broker will do it for you |
You’ll need to contact the broker each time you want to buy or sell, rather than doing it yourself at the click of a button. |
|
You don’t need to know a lot about investing |
Some brokers aren’t as good at picking stocks as others |
Clearly, there are benefits and drawbacks to using a full-service stock broker. Generally speaking, going through a stock broker can be worth your while if you don’t have the time, expertise, or interest in investing in the stock market yourself, and would rather pay someone else to do it for you.
Pros and cons of online broker platforms
On the other hand, using an online broker also has its share of pros and cons as well. Let’s break them down below.
|
Pros |
Cons |
|---|---|
|
You’re in control of your investments and investing choices (this might also be seen as a con) |
You won’t receive personalised financial advice |
|
It’s cheaper than going through a full-service stock broker |
You need to know what you’re doing |
|
The platforms can come with investment research tools to assist you in your decision making |
You have to make all the trades yourself |
|
You can make quick market decisions and invest whenever, wherever, and however you want |
You need to keep an eye on your investments and make hard decisions like whether to buy or sell |
Again, there are pros and cons to using an online broker. But it might be a more suitable means of investing in the stock market if you have some prior knowledge, you’re keen to learn and do your own research, want to invest smaller amounts, or simply want more control over your assets.
Is it worth using a stock broker?
If you’re looking to diversify your assets and build your wealth, investing in the stock market is a popular and proven way of doing so. But either way, whether you use a full-service or online broker, it will cost you time and money, which comes with a big responsibility. At the end of the day, whether it’s worth it will come down to you and your personal/financial situation.
Alternatively, as we’ve mentioned, using micro-investing apps is another way many people are choosing to make their money work for them. Since the pandemic began, millennials have piled into ETFs using micro-investing apps. For example, Raiz recently hit a massive milestone of $1 billion funds under management, meaning $1 billion has been invested by the platform’s 500,000+ users. Generally speaking, ETFs can be a lower-risk investment than singular stocks because they can give you exposure to hundreds of stocks with a single trade, and micro-investing apps offer a relatively simple avenue for making ETF investments.
Whether you choose to go through a full-service broker, online broker, or use a micro-investing app - it’s important to do your research and understand your options. If you’re not sure whether taking the leap into the stock market is right for you, you could consider speaking to a financial adviser.
Image by Chris Li on Unsplash
Harry O'Sullivan
Denise Raward
Hanan Dervisevic
Brooke Cooper
