For best results, go for broker

The easy gains from the booming market saw many investors switch to do-it-yourself, online discount brokers. But with the sharemarket sharply down from its 2007 highs and some experts forecasting a sustained period of weak performance, full-service brokers might start to appeal again.

According to the Australian Security Exchange's 2006 Australian Share Ownership Study, released in the middle of last year, of those investors who had bought or sold shares in the previous two years, 38 per cent had used an online discount broker, and a further 15 per cent had arranged a transaction with a discount broking house via phone, while 37 per cent had used a full-service broker.

By comparison, the 2004 survey found that, of investors who had bought or sold shares in the previous two years, just 22 per cent had used an online discount broker, 6 per cent had used a telephone discount broker and 31 per cent had used a full-service broker. (Other methods included buying directly through a prospectus or buying through an accountant or financial planner.)

An ASX spokesman says at present, online broking accounts for about 21 per cent of all trades by volume and for 8.5 per cent by value.

Online brokers deny they are seeing any loss in business - but full-service brokers are ready to tout their wares.

At the least, a sustained period of market decline or drift could change habits.

"A rising tide of the last 4 1/2 years has covered up a lot of ills and convinced a lot of investors they can do it themselves," says Marcus Padley, author of stockmarket newsletter Marcus Today. "It has also convinced a lot of investors that the people in the advice industry don't know what they are doing.

"You can hand someone the hammer and nails, and they can hammer bits of wood together but they cannot build a house. In the same way, the online market has handed people the tools but it has not handed them the know-how."

Michael Heffernan, senior client adviser and strategist with Austock Securities, notes fees for full-service brokers have fallen: "In the old days, 10 or 12 years ago, clients used to have to pay 2 per cent or more in broking commission for a trade. It isn't that any more."

He says 1.5 per cent would probably be on the high side now, with many full-service brokers charging about 1 per cent, depending on the size of the trade. Yet online giant Commsec has fees starting at $19.95 for a trade of less than $10,000.

"If you are paying 1 per cent, it is a small price for a full-service broker," Heffernan says. "It is a bagatelle when you consider the whole market has dropped more than 20 per cent in the past couple of months. The banks have dropped 30 per cent-plus.

"If you had been advised the market was looking turbulent, that you'd have to watch things for at least several months, you might have sold some of your holdings, based on that advice.

"A full-service broker is invaluable, not only for the advice and the access to research but also for the ability to talk to somebody, which is just so important."

But online brokers believe they can hold their own, even in a volatile market.

"I haven't seen any evidence to support the theory that clients are moving over to full-service brokers," says Matt Comyn, managing director of Commsec. "If anything, I have been surprised that trading volumes have remained as high as they have, given the market uncertainty and given that this is a really difficult time to be in the market and picking what the direction is. Volatility is pretty high and there seem to be shocks coming out more often than not.

"We have an advisory arm which we do not heavily promote but which we do offer to clients. We have representation at most of the capital cities if they want to have a face-to-face conversation.

"Obviously there is a different fee structure attached to that, though we find that once clients have started paying $19.95 for a trade they find it difficult to go back to paying $100."

John Daley, managing director at discount broker E*trade, says the same considerations apply whether the market is up or down: "The key advice, whether it is from a full-service broker or from an online broker, is going to be the same. Protect your portfolio, diversify it, have a long-term strategy and do your homework on the things that you are going to invest in - those are the right pieces of advice whether the market is up or down. Particularly for clients of online brokers, there are several advantages in a down market.

"First, you as a customer have direct access in being able to see what your portfolio is in real time and being able to track it in real time. Second, we are providing you directly with online research from a number of different sources.

"In a down market the cost of the brokerage becomes even more important. It starts to make a significant difference to the percentage expected at return."

Daley says if you are someone who has the ability to make your own decisions, supported by the kind of research that is available from an online broker "then we would suggest that that is true whether the market is up or whether it is down".

"The same kind of basic principles will apply concerning diversifying your portfolio, tracking it, taking the long-term view and then minimising the transaction costs," he says.

WHY IT PAYS TO GET TO KNOW YOUR BROKER

The ASX website (www.asx.com.au) provides a list of full-service and discount brokers by region.

Marcus Padley, author of the Marcus Today daily sharemarket newsletter, says trust is essential.

"A full-service broking relationship only ever builds in the same way any relationship builds. It starts with brokers providing you with a basic service. Then you can move on to information and research. Finally, the last thing you will get is money-making information. But you will only get that when you yourself have bothered to build a relationship."

He says investors and brokers with similar profiles work best.

"It's important to find a match-up so you can get along and build respect rather than build expectation and demand."