I want to invest in stocks both locally in the UAE and overseas. What’s the best way to pick a good broker? I don’t want to be stung by unnecessary fees and heavy losses. IM, Abu Dhabi
Tom Anderson, stockbroker at Killik Offshore
Nobody wants to be stung with unnecessary fees or heavy losses. Dealing with your particular concerns – firstly, costs. A UAE broker on the Dubai Financial Market would be expected to be transparent about their charges because the Dubai Financial Service Authority follows similar principles to the UK’s Financial Conduct Authority. A UK-regulated broker therefore also has to be transparent due to the UK’s Retail Distribution Review (and, I would hope, their own conscience). These charges depend on what you are asking for:
• Do you do your own research and know what you want to buy. If so you would be looking for execution-only services.
• If you want some involvement with deciding what you are buying and why, then you need advisory services.
• If you just want to hand all responsibility over to someone, then you want managed or discretionary services.
Each of these will have commissions for the actual buying and selling of assets, but you also need to check the ongoing costs. These can include custody fees, management charges, account costs and portfolio services, among others. Check how quickly you can sell something – is it all online (execution-only service) or can you make a phone call or send an email (advisory services)? Does your broker have direct access to the market and offer best execution, or does your order get sold to a third party or aggregated with other orders? Make sure you’re not buying unnecessary wrappers to hold your assets. Offshore bonds and Qrops are routinely mis-sold in the UAE and you probably don’t need one.
Secondly, losses. You are looking to buy assets to achieve a particular goal such as growth or income but any asset, including cash, has an associated risk of losing value. Research your investment – how has this stock, or bond, or fund performed in the past? However, past performance is no guarantee of future success, so what might make it perform differently in the future? If you want to discuss the likelihood of volatility you need advisory services. Trying to mitigate those losses with derivatives, structured notes or other financial engineering can have high costs.
A diversified portfolio with minimal charges and a sensible time frame can sometimes be the best way to keep volatility in perspective.
Brendan Dolan, regional director of Old Mutual International for Middle East & Africa
It is important to find a broker/financial adviser which is best suited to your needs, and they do vary considerably in the services they provide and the fees/commission they will charge. It is good practice for advisers to explain the services and costs at the start.
Make sure you ask your broker to explain all the charges involved. The greater the transparency the better as you can then be reassured of the services you will be receiving for your charges/fees.
By understanding your needs and your attitude towards investment risk, an adviser can help ensure the right investment decisions are made, and should help avoid the heavy losses you are concerned about. Some financial advisers have in-house investment experts, and some outsource to third parties, such as a discretionary investment manager.
You are right to be cautious, especially in today’s volatile market, but using investment experts who can match your investment risk profile should help considerably, and give you the peace of mind you need.
Next month’s question:
What is the procedure to change a credit rating if the rating is based on past issues. I had case in 2013 from a bank regarding my credit card during, but it was settled immediately. Since then I have only used one bank for all my needs and have maintained healthy records. I then applied for a credit card from another bank but was rejected due to my low credit rating. I was told to apply to the Central Bank to change my rating. How do I do that? HM, UAE
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