Someone to watch over your shares

For some people finding a stockbroker is a matter of inheritance. They head straight for the firm their family has used for generations. But how do the rest of us go about finding or choosing one?

A stockbroker is a necessity if you want to buy or sell shares - asking for best offers for your 500 ICI shares in Exchange & Mart is not a possibility. You have to use a stockbroker; it is simply one of the rules.

There is a variety of stockbroker services to choose between and a startlingly wide range of charges.

In ascending order of involvement the levels of service you can opt for are as follows.

Execution only, also known, less menacingly, as dealing only. Used by experienced and novice investors alike, this is a cheap and efficient means of dealing in shares when you know what you want and do not want to talk things over. Most stockbrokers will deal on an execution-only basis but the lowest minimum commissions and cheapest deals tend to be found among the high-volume execution-only specialists. The range of fees is wide - anything between pounds 25 and pounds 115 on a pounds 5,000 deal, for instance.

Dealing with advice. This is traditional stockbroking territory. Your broker shares his views of things with you, explains things you do not understand, and lets you try out your ideas on him. You are not expected to pay separately for the advice, it is allowed for in the dealing commissions. Again, there is a wide variation in what you might pay - anything between pounds 90 and pounds 350 on pounds 25,000 of shares in one company. A more expensive broker may be worth the money, of course, provided his investment advice is on target.

Portfolio management. This involves the stockbroker taking a more active interest in the shape and direction of your overall investment portfolio. Two types of service are on offer. With advisory management, the manager comes up with proposals for your portfolio but does not act on them without consulting you first. With the discretionary variety, you hand over responsibility for the running of the portfolio and the manager reports periodically on how it is doing.

You may pay a management fee on top of commissions, or you may pay commission alone, or you may pay some kind of combination (for instance, commission, annual fee and commission offset - the structures can be astoundingly complex). Total charges on an imaginary portfolio of pounds 150,000 might range from pounds 670 to pounds 3,600 for discretionary portfolio management and from pounds 600 to pounds 3,000 for advisory.

Once you have decided on the service you need, how do you choose an individual broker or investment manager? For dealing only, price may be your paramount consideration, but some services are more geared to providing additional information than others; you also need to be able to place your faith in the service's administrative efficiency. Ask prosperous-looking acquaintances if they have a broker they could recommend.

With the giving and taking of advice, your relationship with your broker or investment manager becomes more personal; you need to be able to get along together. Visit the broker or talk to him or her at length. These are other points to consider.

Ensure that the firm has experience with portfolios like yours.

If the firm manages investors' portfolios, how have they performed? Returns should be compared with appropriate stock market indexes, with consideration given to the split between different kinds of investments, cash, shares and gilts, for example.

Look at any research the firm produces.

Ask if the firm runs any "model portfolios" that might help you to assess the quality of its advice.

Enquire into the firm's attitude towards putting, in particular, smaller portfolios into collective investments such as unit and investment trusts. If your funds are likely to be invested in unit or investment trusts you may prefer to select them yourself and save on the management fee.

Calculate what you would have paid in charges over the last year had you been using that broker or investment manager.

Ask whether the firm's nominee arrangements are compulsory. Some investors are perfectly happy to use a nominee account (which helps administration but under which the broker technically becomes the owner of your investments); others find them intolerable.

Ask what facilities the firm will offer when Crest, the new share settlement system, is fully operational later this year and what charges there will be.

Ask yourself whether the firm offers all the services you want.

Once you have found a broker or investment manager keep things under review.

Veronica McGrath is author of 'Investors Chronicle Directory of Stockbrokers and Investment Managers', Pitman Publishing, pounds 30. The 'Independent on Sunday' has 10 free copies to give away. Send a postcard to Steve Lodge, personal finance editor, Stockbroker Book Offer, Independent on Sunday, 1 Canada Square, London E14 5DL.