advertisement

Factors to consider before choosing a stockbroker By Femi Ibirogba Tuesday, January 22, 2008 INVESTMENT in the Nigerian capital market, for those who want to compound and multiply their wealth, is surely an avenue to be explored. For people who desire to transform their earned incomes to portfolio incomes, the Nigerian Stock Exchange is a ready place to actualise that desire and be richer as well as retire to riches. Ndi Okereke-Onyuike, DG, NSE advertisement Investment in the capital market is only possible with the aid of professional stockbrokers. They are the certified buyers and sellers on the floor of the Exchange and they do this for a commission of about three per cent (3%) or more of the total amount of any transaction. Selecting a good broker is one of the most important keys to success in stock trading. No matter how little your investment, a good broker maximises the return on investment, compounding and maintaining your wealth even when you go about doing your business. To know the best broker for you, you need to know exactly what your needs from the broker are and whether he can satisfy them or not. Choosing an incompetent, fraudulent or shady stockbroker is akin to, or even worse than, not investing at all. That is why experts are of the opinion that you consider the following factors as you select a stock broker for your investment in 2008. Use a registered stockbroker At a seminar, “Wealth for the Wise,” organised by Mr. Lanre Oyetade and the others, investment experts advised that only registered stock brokers, who have a known registered office and a name to protect, should be employed for stock investment. This is because a registered stock broker could be penalised by the Securities and Exchange Commission if found guilty of malpractices. So, to a greater extent, investors are protected when they employ the services of registered stockbrokers. Seek referrals In selecting a stock broker, one of the best ways, according to experts, is to seek referrals from satisfied or dissatisfied clients of such stockbrokers. Seeking other people’s opinions, that is the opinions of old clients of a particular stock broker gives you informal details about the integrity, competence and trustworthiness of such a broker. So, before you invest through a broker, investigate his or her character, integrity and competence. Commission rate and quality One of the things you should know about a broker is his commission rate as well as quality of his services. The lower the commission rate, the more the profit you are likely to get. However, low commission rates may negatively affect your profitability, because low commission in the stock market is charged by less experienced brokers who are unable to provide you quality investment advice pieces to trade stocks. Terms of agreement and mode of payment The terms must be meticulously read by a client before signing an investment agreement with any stock broker. These terms, to a great extent, give you a vivid description of the broker and could help you decide whether you are selecting him as your stock broker or not. Again, ensure that you are satisfied with the mode of payment and other modes of operations before signing an investment agreement with a broker. You must know that an agreement is a legal document that binds the broker and the client, indicating you are satisfied with his in-house modes of investment operations. So, be careful. Accessibility Mr. Samuel Ajileye, an investment analyst with Cash Craft Asset Management Limited, that an investor should select a broker that he would have unfettered access to. This, he said, would help the investor to obtain vital information about his investment at the right time and this would aid his investment decisions. He said an investor should not consider a broker that is not readily accessible. Investment wisdom requires an investor to be extremely careful when investing and being careful implies finding details about the facilitator or stockbroker of such investment. Cases of fraudulent practices abound among those who parade themselves as stockbrokers. Therefore, the watchword for an investor should be safety of the capital invested. Being careful when investing also includes keeping meticulous records of all transactions with a stockbroker even if it has been found out that such a broker is honest beyond reasonable doubt. Presenting records of transactions by the investor solves several problems that could emanate from mistakes or carelessness on the part of the broker and it could also be used in litigation if situation calls for one. Getting information through books written about investment in the capital market and prevailing prices of shares is also part of investment wisdom. Information about prices at a particular time keeps you informed of details that can help you detect if your broker is honest or fraudulent. Reading daily newspapers for current prices and development in the capital market is also imperative as soon as you take your first investment step. So, be constantly informed via independent media—independent of your stockbroker. Finally, never hesitate to expose fraudulent stockbrokers if you have been a victim. Concealing their dishonest acts would only make the number of their victims be on the increase. Exposing them either through a petition to the Security and Exchange Commission or through letters to the dailies would nip their shady activities in the bud.