Advisory broking

Advisory stockbroking services offer investors advice from a stockbroker - but the final investment decisions are left to the client. Unlike discretionary stockbroking, the client retains control over each and every investment decision. Unlike execution only services, the broker does offer advice.

As with discretionary broking services, advisory services usually require a minimum portfolio size from clients. The service is too expensive to provide at reasonable rates for small portfolios. The broker usually charges a commission that is a percentage of the value of each transaction.

The fee structure of advisory broking does create an incentive for brokers to churn (trade more than is beneficial to the client) in order to generate commission. This is very rarely taken to extremes as it becomes apparent to clients and is likely to ultimately draw regulators' (in the UK, the FCA's) attention as well.

In terms of cost, the level of control investors have and the amount of work investors need to do themselves, advisory services fall between discretionary and execution only broking services.

The combination of advice and dealing services, and commission based on deal size, makes private client broking superficially similar to the services provided to institutional clients. However:

  • A private client is more likely to follow a broker's advice than an institutional client.
  • Private clients are likely to be offered more specific advice ("sell A and buy B").
  • A private client will almost always use just one broker whereas an institutional client will usually use several.
  • The simple advice and research typically offered to private clients is nothing like the detailed research offered to institutional clients.
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