Why Choosing the Right Stock Broker is Crucial Before Investors Begin Their Capital Market Journey

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From the bygone era of noisy ring trading and high-priced market intermediation to a historic transformation in technological, profitable and democratic operations, brokerage has truly come of age. (Photo: REUTERS)

By Anshul Arzare

From the bygone era of noisy ring trading and high-priced market intermediation to a historic transformation in technological, profitable and democratic operations, brokerage has truly come of age. As account opening and fund transfers for trading have become seamless in the online age, a plethora of AI-based apps and tools are ready to help you invest and trade. cautiously based on stated goals and aspirations. Given the best choice and control in the hands of stakeholders on the demand side, many discount brokerage players have emerged in what is a crowded market, a market driven by price, not service.

Despite all of its advantages, discount brokerage is largely a volume-driven game, as the brokerage mission, more often than not, is unduly commission-centric. Brokerage is now synonymous with one-click trade executions at the lowest cost of ownership. But does the ease and convenience of the self-service model translate into more wealth creation and maximization? Not necessarily. Brokerage, after all, is not just about its underlying transactions; it is more than the sum of its parts. A good broker is a partner in the making, not just a concierge for the execution and settlement of transactions.

Choosing a broker, a task steeped in prudence and diligence, calls for a deeper recognition of the ultimate goal of trading in financial markets: the achievement of short and long term goals, and the creation of ‘a substantial heritage to help meet post-retirement expenses. The 24-hour service broker (which is not synonymous with full service) provides added value distinct from two components – attention and insight. Choosing a broker requires a careful assessment of these two components:

Quality of attention

  • Ease, convenience and profitability of brokerage operations are undoubtedly essential attributes, but they are more or less given in this age of technology-powered business. Robust trading platforms certainly enrich the measurable value of the relationship, but the quality of the brokerage relationship depends on the advice provided by the brokers which in turn creates the irreplaceable value called trust. The digital footprint of the brokerage firm should be aimed at creating non-intrusive privacy with the customer apart from an enhanced user experience.
  • The broker’s customer service, including the downstream resolution of queries and complaints, must be fast, efficient, proactive, transparent and solution-focused. The designated representative should be easily accessible at all times, and critical updates should be proactively released to the customer’s channels of choice, making the most of the technology in this crucial area.
  • Brokerage firms have a fiduciary responsibility to the larger cause of their clients. A good broker proactively educates the client on common myths and unreasonable expectations that often exceed logic and reason and promptly advises caution and caution whenever necessary.

Quality of sharpness

  • Research is the backbone of a good brokerage. The best are invariably distinguished from the rest by the frequency, diversity, and depth of their research releases, which go far beyond the usual industry and company reports or daily market updates. They include analyzes of markets, economy and industry; insightful summaries of global and national market events; key stock ideas based on various themes; and insightful conversations with industry leaders and market mavericks on topical issues.
  • Financial literacy should be an integral part of the broker’s range of services. Careful stock selection is more elusive than the term means. It’s about putting equity and debt in perspective, tying the two to the needs of each client before harnessing the intrinsic virtues of both asset classes in a judicious mix.
  • Before recommending choices, the stockbroker should consider the client’s life goals – whether short, medium, and long term – as well as milestones such as higher education, employment, entrepreneurship, marriage, childbirth, etc. A choice will only work if it is designed to achieve the exact goal of achieving short- or long-term goals within defined time frames and commensurate risk appetites.
  • Cutting-edge technology becomes a key tool if it is used wisely, not just acquired. For example, for big data analytics to be successful, companies need to have the right mix of domain and technology expertise to be able to analyze volume, speed, variety, veracity, and value. data, and identify organic revenue opportunities for their clients.

The value of advice from a good broker is inherently holistic. It helps the client to make disciplined and diversified purchases based on income profiles and risk appetite, making the most of tax incentives and market opportunities. It unveils the intricacies that usually confuse the small investor, such as the pros and cons of load-bearing and no-load mutual funds, and lump-sum and SIP investments. He insists on the monumental role of a safety margin in the maintenance of a portfolio. Good advice is also to make the client aware of the dangers of excessive caution and greed, how the term “multibagger” is often reduced to a misnomer, through special interest work. This helps the client understand market cycles, including big ups and downs, and the underlying logic (or lack thereof). It helps spot sunrise players with accessories of undeniable value, while also explaining when and why ladder buying or buying on downward trajectories can make sense. He explains how a changing landscape can quickly turn latecomers into promising bets and jumbo jets into too. It demystifies the union budget to ensure a better and workable understanding of the likely effect of draconian and optimistic measures.

In this era of increasing complexity, perpetual uncertainty and near-fatal disruption like Covid-19, investors must be extremely vigilant about their brokerage relationships, otherwise the caution imposed by the market will force them to re-examine the measurable value of ” low-cost ”and“ high volume ”claims in hindsight. Quality of attention and insight are the building blocks of a broker’s value proposition. Consciously or unconsciously, in the unbalanced focus on cost, this premium should not end up being discounted.

(Anshul Arzare is Business Head – Investment Advisory & Wealth Broking for YES SECURITIES. The views expressed are those of the author.)

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