Find the best share-dealing service for you

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Using a share-dealing service is the best way for an investor to create a truly bespoke portfolio and it can be a fantastic way of learning about successful investing.

If money is made or lost, investors can understand why and make sure they do better next time. However, selecting the right service is complex and investors need to be sure of their needs before they sign up.

To some extent, the whole share-dealing industry is homogenous now. Previously, stockbrokers used to use different types of accounts, depending on whether an investor needed, say, share certificates or advice, but now most people use the same type of account, and most are comfortable dealing online or over the phone.

However, share-dealing services still vary significantly by cost. There will always be a dealing or trading fee. It might be a percentage of the value of the trade or a flat fee. These are usually around £10 per deal for online trades, with dealing over the phone likely to be more expensive. Costs can be lower for regular investors. Interactive Investor, for example, offers a regular investing service for just £1.50, which is ideal for investors who want to drip-feed money into the markets and don't mind the trade being made on a fixed date every month.

Five questions to ask before you select your share-dealing service...

  1. What are the dealing charges?
  2. Are there custody fees, inactivity fees or dividend-collection fees to bear in mind?
  3. How easy is the site to use? Spend some time on the site before committing.
  4. Does it offer tools and research aids that suit your style of investing? Some sites target novice investors while others are aimed at more experienced traders.
  5. Do you need advice?

Ultimately, the right deal for each individual investor will also depend on the frequency of trading. Some groups offer a lower fee for frequent trades but charge an "inactivity" fee; others may have a higher fee but no inactivity fee, which would suit longer-term investors.

Ben Yearsley, head of investment research at Charles Stanley Direct, says that beyond straight dealing fees, charging becomes more complicated. "There might be dividend collection fees, which would not suit dividend investors," he says, pointing out that groups such as BP (BP.) or GlaxoSmithKline (GSK) pay dividends four times a year and dividend-collection fees can therefore mount up quickly. "There may be custody fees or inactivity fees, which make knowing which service to use more complicated. Dealing fees are easy to compare; it's the next level that's more difficult."

Different groups will also have different charging structures for their tax wrappers, such as individual savings accounts (ISA) and self-invested personal pensions (SIPPs). On the whole, the cost for the SIPP or ISA wrapper itself should be near zero. There are exceptions, such as complex SIPPs where investors hold commercial property, but these will generally be arranged through a financial adviser. However, there may be different charges for the underlying investments depending on whether they are bought within a tax wrapper or outside. Yearsley believes it is up to individual investors to assess what they want and match it to the service provided.

Support for those who need it

The share-dealing services will also differ significantly on functionality. For example, Yearsley points out that some will have instant share-price data. If an investor is dealing daily, this regular information is important, but is unlikely to matter as much for longer-term investors. For other investors, it may simply come down to ease of use of the data.

The information and educational content on different sites will also vary. Most websites now recognise that they need to support their investors' decision-making, but some are more pro-active than others. At the top end, investors might want a full advice service. Here, investors receive share tips and advice from brokers, from which they can make decisions. This is the traditional stockbroking model and is still offered by many groups, though it tends to be more expensive. Other groups may offer an "advice-lite" proposition. For example, The Share Centre has a small advice team, which doesn't charge.

Elsewhere, Damian Stansfield, managing director of Halifax Share Dealing, says companies will have other tools to help investors through their decision-making process. They will have risk-assessment tools, for example, to guide investors to the right sort of investments for their needs. There will also be tools to help them manage risk effectively: "We have limit orders, for example, which is one of our risk-mitigation tools for customers. This means they can sell only at the level they want to sell."

Some brokers will offer access to full stockmarket information on individual companies. Stansfield says this is the most widely used part of the Halifax Share Dealing website, and investors often access the research many times before investing.

A broad spectrum of investments

The type of support an investor needs depends on the amount they have to invest. Yearsley says: "If someone is investing £5,000 to £10,000, they will probably be happy dealing online, but if they have £250,000, they will probably want to speak to a broker for advice and guidance."

Share-dealing websites offer a variety of shares to choose from. Some will offer global shares, for example, meaning investors could - if they wished - look at groups such as Coca-Cola (KO) or Colgate-Palmolive (CL) in the US, or L'Oréal in France. However, Stansfield says the vast majority of Halifax Share Dealing's clients still focus on the UK. He adds: "We find it is important to offer a broad spectrum of UK investments. People trade when they see an opportunity and some of it is counter-intuitive. For example, when there was bad news on HMV, there was a lot of activity in retail names in the UK as people saw the opportunity to pick up a bargain."

He says investors are increasingly looking to international names, with Apple (AAPL) one of the most heavily traded shares on the group's platform. For the time being, Halifax's investors have not moved into more esoteric markets, such as Asia. Stansfield says the group's research suggests most investors prefer to access these markets through UK-listed stocks, such as through a UK-listed company that operates most of its business overseas.

Ultimately, different websites are targeted at different types of investors and investors need to be sure they find the right platform for them. For example, the Halifax service tends to attract less-experienced investors, who need plenty of information and a site that is easy to use. Others, such as Interactive Investor, may attract day traders who deal frequently and need to keep costs low. More traditional brokerage houses, such as Redmayne-Bentley, may attract investors with large portfolios, who need some guidance and ideas.

Graham Spooner, an investment research analyst at The Share Centre, comments: "Some investors want overseas stocks, others like spread-betting. Investors need to look at the charges to ensure long-term investors aren't getting hit with inactivity fees and day traders aren't getting hit with high dealing costs. There are a range of different accounts and investors need to find the right one to suit."

Using a share-dealing service should enable investors to build a portfolio, and picking the right service is an important part of that decision.

How six share-dealing platforms' costs compare
 Barclays Stockbrokers
Hargreaves LansdownInteractive InvestorThe Share CentreSelftradeTD Waterhouse
Account typesInvestment ISA, SIPP, Marketmaster, Pension TraderISA, SIPP, fund and share accountShare dealing, Self-select ISA and SIPPShare dealing, ISA and SIPPDealing account, shares ISA, SIPPTrading, Trading ISA, SIPP, trading offshore, regular investing
Admin chargeNone if you trade within the quarterNo administration fee for cash and most funds (some funds cost £1 or £2 a month), 0.5% for all other investments held inside an ISA (capped at £45 a year)Quarterly £20 (but 2 x £10 trading credits)Per quarter - £2.50 plus VAT for standard & frequent trader accountsNone, but inactivity fee of £8.75 per quarterNone
Annual
management
charge (AMC)
Portfolio value of £7,500 or less: £30 per annum plus VAT. Portfolio value of more than £7,500: £50 per annum plus VATNoneNoneNoneNone
£12.50 plus VAT or 0% for accounts of £15,000 or higher
Dealing charges1-14 trades per month - £12.95, 15-24 trades per month - £9.95, 25 and above trades per month - £6.95From £5.95 to £11.95 per trade depending on the size of the transaction for online trades. Telephone and postal dealing: 1% (£20 minimum and £50 maximum)£1.50 in a regular investment plan. £10 in all others, £5 for regular tradersShare dealing - 1% (£7.50 minimum), with trader option - £7.50 per deal£12.50 per trade online, plus reduced rates for frequent traders once you've completed 100 trades in a quarter. £17.50 for phone transactions up to £2,500Online trading is a flat fee of £12.50, or £8.95 when you trade at least 10 times per month in the previous three months