10 Things To Know About Your Broker

Stock brokers have been choosy about clients for a long time. Now its your turn

Picking a stock is no childs play. But picking the right broker to help you buy that stock could be even tougher, if anything. Thats because a good broker can increase the profits you make on a scrip by a hefty percentage just by buying right, selling right, and providing all the right services. And conversely, a bad broker can lose you a lot of money. Since you are paying your broker 0.5 per cent of the transaction win, lose or draw it makes good sense to know whom you are forking out that money to. Because if you intend to transact regularly, that half a per cent could end up adding to quite an amount. What do you look for in picking the right broker? Here are the ten most important questions that you should be asking.

 

Question No 1: Which broker should you go to?

There are two types of brokers: the traditional and the professional. The former group has been in business for generations and their style of functioning has come under scrutiny time and again because many of their clients have felt that the primary motive of some of these brokers is to exploit clients as much as possible. But this group has included the mainline people in the stockmarket, ever since its inception.

The other group is the first generation brokers who believe in research-based decisions. This class of brokers has gained popularity in the recent past for the transparency of their dealings. This group is best suited for small investors. The investor companies who would have been ideal for looking after your money in the sharemarket prefer to deal with companies and institutions and entertain only high net worth individuals as clients.

Question No 2: How do you go to the right broker?

At the moment, most people choose brokers based on referrals from someone they know and as a result, they often dont get all the facilities and services a broker should give them.

You should also be equipped with good references before approaching a broker. Harish Rao, consultant, Bonanza Portfolio Limited explains, With the advent of fake and forged certificates, today a broker is more wary about choosing his clients than an individual making a choice of his broker. There are chances of a broker being suspended if he introduces false scrips in circulation. Rao elucidates further, There have also been cases when an individual asked the broker to buy shares of a reputed company and then vanished into thin air.

Question No 3: How many exchanges does the broker have a presence on?

First and foremost, ask the broker whether he has cards to trade on both the exchanges, the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE). Between these two exchanges, most stocks will be covered. Moreover, there could be times when the price on NSE may be more favourable than BSE or vice versa. If correspondent arrangement is available at the other exchanges like Delhi, Chennai and Calcutta, so much the better.

Question No 4: Is your broker a member of the National Securities Depository?

It is an added benefit if your broker is a member of the National Securities Depository Limited (NSDL). This is still in its infancy but experts believe the idea of scripless trading will be a success in the near future. In such a scenario, experts advise the retail investor to move to the dematerialised segment.

Question No 5: How creditworthy is your broker?

Today, you really do not have to bother about the creditworthiness of the broker because the Security Exchange Board of India (Sebi) has enforced the capital adequacy norm. A broker can trade up to 33.5 times of his base capital. An absolute minimum of Rs 5 lakh shall be maintained with the exchange by members of BSE and Calcutta Stock Exchange (CSE). The minimum amount at the Delhi and Ahmedabad stock exchanges is Rs 3.5 lakh. The members of other stock exchanges need to maintain Rs 2 lakh.

Question No 6: Is it possible to do your transactions through a sub-broker? And is your sub-broker registered?

Even if you have managed to locate a sub-broker, and not a broker, do not bother about him vanishing with your money since all of them are supposed to be registered with Sebi. But what happens at times is that the sub-broker may not be registered with Sebi which has to be verified. Detailed information about the person in question can be sourced from the regulatory body. You can also seek help from the broker, if the sub-broker is registered.

Question No 7: Do you manage to get the right price?

Ever since screen based trading was introduced, the chances of the broker misquoting the scrip price has been lessened. There have been cases where the broker has informed the client that the shares were sold when the price was at its lowest and bought the scrips when the prices had reached the peak. Rao says, In this business no one is trustworthy. With the help of the screen at least it is possible for you to keep a track of what the share price was at the point of time when the transaction took place. The contract note has the price on it. The broker also gets a sauda sheet from the exchange with price, quantity and time and the investor can demand to see this computerised sheet. It is always better to keep in touch with the broker and keep checking on whether the deal went through and if it did, at what price and time.

Question No 8: How quickly does the broker pay up?

When you buy a stock, the broker will see to it that you pay up before the pay-in day; but he may not be as prompt in repaying your money when you sell! And when you buy the shares of a company, how soon will the delivery be made? It should come within a fortnight.

Question No 9: How prompt is he in rectifying objections and bad deliveries?

With so many forged certificates doing the rounds, it is important that you dont get stuck with one of these. In case this happens, the exchanges have a strong mechanism to rectify it, but your broker should take positive action to expedite the matter. Conversely, if there is an objection at your end, say, your signature does not match, then again you will run into problems. There is no hard and fast rule to verify these things but a pro-active broker will go a long way.

Question No 10: How does he help you in making money?

Is he going to arrange for regular research reports from various research firms in the companies you are interested in? Anyway, it is very important that you keep in touch with the developments of the company where you are a shareholder. If things are not going right in the company, the broker should be telling you to get out. As long as the broker provides the right advice on when to enter and exit, you can laugh your way to the bank.