Stockbrokers explained How execution-only stockbrokers work
Execution-only stockbrokers tend to offer a wider range of investment options.
As well as regular share-dealing accounts, which let you trade by phone or online, execution-only stockbrokers let you invest in stocks and shares within an Isa or Sipp (self-invested personal pension) for the tax benefits they offer.
Some brokers let you invest in pooled investments such as unit trusts or Oeics (open-ended investment companies). Others let you trade CFDs (contracts for difference) or carry out spread betting, which both allow you to profit on falling, as well as rising, share prices without actually owning the shares themselves. However, you’ll need to be an experienced investor for these. Some brokers even make you take a test before you can trade in these riskier securities.
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Most execution-only brokers offer nominee accounts. This means your shares are held electronically in the stockbroker’s name but you are still the ultimate owner.
The advantages of this are that the stockbroker can deal with all the administration involved in being a shareholder for you. This ensures you can settle transactions quickly and avoid losing money by missing a deadline, as documents don’t need to be sent back and forth in the post – deals done on the London Stock Exchange must usually be settled two working days later.
Previously, using a nominee account meant you didn’t receive correspondence, such as company reports or invitations to shareholder meetings, directly from the companies you held shares in, as your name didn’t appear on their registers.
However, the Companies Act 2006 gave nominee shareholders the right to receive this information directly if you ask for it.
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