How To Find A Good Stockbroker And Get The Best Results

Tips On What To Focus On Before And After Choosing A Broker

To invest in the stock market in Nigeria, you need the services of a stockbroker, mainly for two reasons:

  • it's in the Nigerian Stock Exchange's operational procedures that only licensed stockbrokers can buy or sell shares on the floor of the exchange;
  • investing has a lot of technical content. While you're free to take your own decisions, you're likely to benefit a lot from the experience, access to market information and technical know-how of a good stockbroker.

You Need An Honest and Diligent Partner
Because you will be placing hard-earned resources at the disposal of the stockbroker at certain points, there is need to exercise care in making a choice. Recorded cases of abuses by stockbrokers are not rare. Falling victim to an unscrupulous stockbroker could be a terrible setback for your wealth-building effort, especially if you are ignorant of the abuses you are subjected to over a long period. A responsible, honest, diligent, knowledgeable and experienced stockbroker will be an invaluable partner in your quest for stock-market success. When you need a personal doctor, accountant, lawyer or other key professional, you definitely want someone you can entrust with important resources or decisions and still have peace of mind. It's so too for a stockbroker. Don't begin a relationship with a broker because he marketed you or somehow chanced on you. It's more serious than that. Do yourself some good by deliberately defining your choice-criteria and searching out a broker that meets them.

First, Get Your Act Together
Before you turn your fortunes over to a stockbroker, it is proper you organise yourself a little. While the stockbroker can provide a lot of hand-holding and guide you through the processes, you will be doing yourself a lot of good by obtaining some basic knowledge of how things work. Read up a few things if you can (print media, internet sites, etc are rich with relevant materials) or ask questions from people you know who have some market experience. You also need to take some basic decisions as to what you want:

  • your investment goals (so you can judge which broker can best help you to meet them
  • the level of services you will need: just trades or with investment advisory services?; full portfolio management?; cash management with deposits that you need to negotiate rates for?; frequents trades or just occasional orders?; market research capability?

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Short-listing Brokers To Evaluate
The number of licensed stockbrokers dealing on the Nigerian Stock Exchange is relatively large and you hardly need to evaluate or interview all. You probably need to look closely at a handful of them to choose which to operate with. Some ways you can narrow down include:

  • Ask friends, relations, colleagues or anybody who has been in the business of investing in the stock market. Your banker or other financial sector professional may also have some recommendations. Most wealthy people you know will probably be investing in the stock market and may be familiar with major stockbrokers. Ask people you have confidence in and you will likely get good references . But don't take referrals lightly. A referral from an undiscerning investor may be of little worth if that investor is not critical or has no serious expectation from a broker.
  • A share offer prospectus will usually list stockbrokers who are receiving agents. If you look at a recent one, it could provide a guide. If the issuing house (a key market operator) will appoint them to receive issue proceeds, it is some vote of confidence. The danger is that some of these lists may be reprinted without discrimination, making it an all-comers affair.
  • The Securities and Exchange Commission has a listing of Capital Market Operators (including stockbrokers) with current licenses, which you can access at their web site. Being the regulator that lists and delists, suspends or re-instates operators, you will do well to crosscheck that any broker you are considering is currently licenses to operate in that capacity
  • Many of our financial institutions, particularly banks and discount houses, have stockbrokerage firms as subsidiaries. Considering the financial backing, corporate-governance standards and managerial capacity advantages that this portends, I'll always suggest a look-in at those houses backed by these big corporates.

Tips On What To Look For
Don't just enlist a broker. Your hard-earned money, which you should be in no hurry to lose, deserves a careful choice of a broker to entrust it with. Screen the options thoroughly (I'm sure you aren't in any big hurry), taking into account the following criteria:

  1. Check out the broker's background, in particular as to whether he/the house has been involved in any official disciplinary process of the Stock Exchange or Securities And Exchange Commission. Many brokers have records of past misdeeds or involvement in investigations, whether found guilty or not. With many brokers to choose from, I would, if I were you, steer clear of those that have past records. Also, if you have access to the opinion of past or existing clients of the broker, it may help you in forming your own opinion.


  2. You should be much interested in the skills and experience of the broker you are considering. The broker should be able to prove his worth. Look, you are trying to engage his services and it isn't too much to require him to demonstrate his capacity to perform. Is he prepared to show you a client's list which you can evaluate and indeed verify.


  3. Especially if you intend to rely on the broker for advice, decisions or to manage your portfolio, his research capability and system should interest. For all you know, a lot of brokers are simply going by the drift of the market with little or no capacity to research the stocks or market and make independent judgment. For long term success, you need more than following the crowd and a broker that inherently has something to offer will better serve your interest.


  4. Find out what the add-on services the broker will provide. Some brokers today will, for instance, provide you daily market updates (the official list, their in-house analysis and top picks, company results and other information) which are very valuable, even at no cost to you. So, why settle for a broker that hasn't the capacity to deliver this resource?


  5. Your statements and transaction documentations will be important in monitoring your account and portfolio. Investors' stocks have been sold without their knowledge and the statement will highlight this, especially if it was done in error. Don't take it for granted that every broker regularly delivers these without a struggle from you. While the Trade Alert and Special Accounts at the CSCS are other safeguards to protect your investment, you're better off with a broker who is diligent to provide statements, contract notes and other relevant documents to help clients keep a tab.


  6. Check if the broker has any specialty or is a jack-of-all-trade. If a broker has special focus and strength and this agrees with your investment goals and aspiration, you will gain more mileage working with him.


  7. Accessibility of your broker is also important to your success. Find out if the broker has good client service disposition. If your broker will not be accessible when you need information, clarification or advice, you will possibly have a hectic time relating with him and could miss important investment or exit opportunities. Determine early that a good system is in place to meet this need.


  8. The transaction commissions and charges may make a significant impact, especially when you trade frequently. Beyond the statutory fees, nothing stops the broker from negotiating his commissions with you, especially if volume commitment justifies it. While you wouldn't engage a broker just because he is cheap (he could cost you dearly in other ways), not being sensitive to your costs could deplete your resources. So, if a broker meets other tests and is also good on rates, you have a better bargain since you will be encouraged to trade more frequently. Also, if you are to leave cash floats with the broker for investment, you deserve a reasonable return (interest payment) which he should readily offer. Watch out for the one that will want to take advantage. He will do so in other respects when he has the opportunity


  9. The financial muscle of the broker is important as well. We earlier alluded to the inherent strength of brokerage houses with major financial institutions as parents. There are other financially sound brokers. Since they simply buy and sell stuff for you, is this really important? I'll say somehow. If the broker sells your stock but cannot pay you because his account at the bank is overdrawn beyond limit, what happens? What if it becomes a terminal development? A strong parent company or proven financial strength, will always be an advantage.

Staying On Top Of The Action
Evaluate brokers, considering these factors and make a choice. But don't go to sleep thereafter. Resolve to be actively involved, not only to ensure you keep a tap on your investments, but also to learn from the process. So, take responsibility and don't abandon your nest egg to somebody just because you think you trust their skill or integrity. Obtain and review your statements regularly. It's advisable to have this occassionally printed directly at the CSCS. It doesn't cost much and could save you a lot of trouble. Needless to say that you need personal records of some sort. Depending on resources you have, you can create a spread sheet file or use Microsoft Access to capture your transactions on your PC. Otherwise, a register. If you can afford a stock-tracking software, this may be an easier option. The trade alert is there to protect you, so use it. Find out too about the CSCS special account and see if that will serve your interest. Note also that the Nigerian Stock Exchange has a complaints unit where you can lodge a complaint if you feel a broker has abused the relationship. Find out too about other statutory protections that are available to you as an investor.

The bottom line is that your hard-earned money should be nurtured to grow and not rather frittered away by a broker you've entrusted it with.

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