First, let’s understand the primary role of a stockbroking firm:
A stockbroking firm offers traders and investors a platform to buy, hold, and sell stocks in the stock market. Period. Sure, a firm may offer analysts’ reports and a set of technical analytical tools to its users. But, these functions are intended to promote ‘stock trading’ activities as a firm earns income mainly from brokerage fees. The more ‘trades’ users perform, the more fees to be earned.
As an investor, I did not use 95% of the functions in my stock brokerage account today and that is okay. This is because the key to building sustainable wealth for the long-term lies in the stocks that I invest, not the firm or functions which are made available in my account. But nevertheless, I would still expect a firm to be one that fulfills at least 4 criterias as listed below:
1. Regulation
The stock brokerage firm must be regulated by relevant authorities. They would include the Securities Commission (SC) in Malaysia and the Monetary Authority of Singapore (MAS) and the U.S. Securities and Exchange Commission (SEC). For firms that are not regulated by any of these regulatory authorities, it is wise not to open an account and invest with them due to a lack of investors’ protection.
But still as a Malaysian, I have opted for a brokerage firm that is regulated by SC as I find it to be more trustworthy.
2. Market Accessibility
Personally, there are four markets that I like to invest in namely, Malaysia, Hong Kong, Singapore and the United States. Thus, if a brokerage firm could grant me access to these four markets, that is good enough with me. At this stage, I don’t need access to Japan, Korea, Australia, Thailand, Europe and so on and so forth. This is because I have little data and information on stocks in these countries.
3. Easy to Execute Trade
As long as I could easily buy and sell stocks on the firm’s online platform, that is good enough for me. If the platform is too complicated, I would dismiss it. With that being said, there is no ‘website demos’ for some online trading platforms. I myself did not test out the trading platform offered by my brokerage firm when I first opened an account with them. Fortunately, for me, the firm’s staff is quite helpful with me and thus, allowing me to execute my trades easily. Thus in brief here, as long as the trading platform is easy to use and its staff is helpful, that is a good brokerage firm to open an account with.
4. Transaction Fees
The fees offered by most stock brokerage firms are competitive. So, I would say, ‘Please shop around.’ Typically, the fees incurred when you invest in a stock are:
1. Brokerage fees.
2. Contract Stamp (Local Stocks).
3. Clearing Fees (Local Stocks).
4. Foreign Fees Payable (Overseas Stocks).
5. Dividend Handling Fees (Overseas Stocks).
Here, I don’t think you need to always find the lowest-fee broker. Rather as long as you are comfortable with the firm and the firm’s fee are reasonably good, for me, that would suffice.
5. Estate Planning Matters
Let’s say, you are interested in investing in a stock listed in Singapore. So here, a key question is: ‘Is it better to invest with a broker in Malaysia or Singapore?’. In some cases, you may find it cost-efficient to invest with a Singapore broker. But, as a Malaysian, you may need to consider estate planning matters.
What do I mean? Let me explain:
For instance, if a Malaysian invested in a Singapore stock via a Singapore broker passed away with a Malaysian will, what happens is that his Malaysian will shall take effect immediately first in Malaysia to deal with his Malaysian estate. Then after, his Malaysian will would be resealed and be effective in Singapore. So, for the time-being, his stocks in Singapore shall be frozen.
Of course, this is unless the Malaysian has written a separate will in Singapore. I would say that if you intend to build a substantial portfolio in Singapore with an established firm in Singapore, you may consider writing a will in Singapore.
Conclusion:
All in all, I think that as long as the brokerage firm fulfills the first 4 main criteria listed above, that would suffice.
Here, if you have more specific questions on this matter, please post yours to us at ian@kclau.com.
