By Goddy Egene, 06.20.2010 

 

When Mr. Daniel Okunana retired from a soft drink bottling company as a factory manager five months ago, he received significant sum of money as pay off by the company. As he was contemplating the kind of business to establish, an old friend of his, who has now become a stockbroker sold the idea of investing in stocks to him.

Okunana was convinced by his broker friend that the stock market is already recovering and that most of the stocks are currently undervalued.  Having seen the upward trend the market was recording, Okunana decided to invest part of his money in stocks through is broker friend.After investing, he started monitoring the shares on the pages of the newspapers. Okunana realised that based on the date his broker told him the shares were bought, some of the shares have recorded significant capital appreciation. 

He therefore, decided to sell those shares that have recorded capital gain of over 40 per cent. But he approached his stockbroker friend, he discovered the greatest shock of his life. The broker told Okunana that he did not buy some of the shares he claimed to have bought. This development did only devastate Okunana, but also necessitated his search for another broker.  Some investors have had worst experiences either completely losing their money to dubious stockbrokers or are still struggling to retrieve their funds from brokers. The deliberate fraudulent practices of some brokers have made many investors to contemplate changing their brokers.

However, information has shown that some investors become victims of dubious stockbrokers because they make hasty decisions when choosing their stockbrokers.Market operators said that before settling for a stockbroker there are factors that should be considered.

Registration

 

The first important thing is to ensure that the stock broking firm is registered by the Securities and Exchange Commission (SEC) and the brokers themselves are licenced by the NSE. If you know an individual who is a qualified stockbroker, you also have to make sure that he is working with a stockbroking firm before handing over your money to him.  When you deal with an unregistered broker, it would be difficult to get the assistance of regulators when you run into trouble.

 

Experience

Also, you have to look at the experience of the stockbroker and how old the stock broking house is.A senior stockbroker once said that an investor must find out how old the stockbroking firm is before patronising them. According to him, the stockbroking houses with bad reputation are bound to fail within a short period of two and three years. Hence, it is not advisable to patronise firms that do not have enough experience. However, if the stockbroking firm is relatively new, you should find out about the individuals people who own it. This is so because some experienced individuals may decide to quit their work place and float their own firms.This means that if a stock broking firm is new but the  brokers   are experienced people without any history of fraudulent  practices, you may decide to patronise such firms.

Trust and Honesty

According to market operators, trust and honesty are two qualities that are needed in every investor-stockbroker relationship. Therefore, in choosing the stock broking firm, ensure that they are the people   you can trust. They must also be honest because you are entrusting them with your money. If possible, ask questions about a stock broking firms before you engage them. You can do this by talking to some of their existing clients. No matter how much confidence you have in your broker, remember that it is your money and the final decision and responsibility is yours. 

Competence

Your stock broking firm must be a competent one. Apart from the professional ability, your stockbroker must be well equipped with good Information Technology since the market is driven by information. We now have remote trading where stockbrokers do not have to be on the trading floor of the NSE to carry on trading activities. With remote trading, many stockbrokers hook on to the NSE trading engine directly from their offices. As an investor, who is yet to have a broker, ensure that the one you are looking for is IT compliant. You should be able to have access to your account with your broker from anywhere in the Nigeria in particular and the world in general.This will enable you know the position of your investments and take necessary decisions.

A stockbroker with a good research department is preferable as they will be able carry out research on companies; give you correct and distinct information. However, this may cost you more than a broking firm without a research department.Despite having some of these qualities, many brokers have disappointed their investors to the point that they are forced to take the decision to quit. However, Smart Investor, a medium dedicated to investor education, said that knowing when to quit a stockbroker is also a test on investors’ ability to make good judgment their finances. Apart from the treatment meted out to Okunana by his stockbroker, there are other instances that can warrant an investor to leave his broker and go for another.

 

 

Not Meeting Mandates

Investor will want to change stockbroker when his mandates are neither carried out at all nor carried out on time. According to Smart Investor, if your stockbroker consistently flouts your buy or sell orders, you need to decide if you want to continue with the same stockbroker or not. Delay in carrying out instructions on your portfolio can make you lose money. Sometimes, stockbrokers delay the purchase order of smaller clients and pay attention to bigger clients or even their in-house investments. If your stockbroker considers you too small to do business with them, move on to another.

Selling Shares without Consent

Another reason an investor would want to change his broker is when his shares are sold without his consent. There are instances when this can by mistake and that is when there is a cross deal. However, if this becomes a habit, then the investor is in the wrong place. The best thing to do is to quit.

Flimsy Excuses

Some brokers are fond of giving excuses when asked to verify share certificates. For instance, if an investor submitted his certificates for verification and returned three weeks later only to be told to come back in two weeks.  On getting back, he finds out that his certificates were still unverified. Unfortunately, many stockbrokers give excuses that are not tenable. An investor who has gone through this experience in the hands of his stockbroker would definitely want to change to a better place.

Fraudulent Practices 

When stockbrokers are involved in fraudulent activities and they have been indicted by the Securities and Exchange Commission (SEC), Nigerian Stock Exchange (NSE) or  the anti-crime agency – Economic and Financial crimes commission (EFCC), the clients need not to be told what to do. Once the brokers compromise with issues of integrity and loyalty to customers, the best thing to do is change to another firm.

Advice by Broker

In some cases, transparent stock broking firms ask their customers to move their account to other stockbrokers when they feel they can no longer serve such customers well.  Apart from this instance, some brokers can also advice   investors to quit if they are troublesome or insincere. As we have dubious brokers, there are also dubious investors. Their intention, most times, is to commit acts that could lead to losses by the broker or other clients.

 

 

High Charges 

Investors change brokers when they are overcharged. Although all buy or sell orders are charged commission, sometimes these commissions exceed what stockbrokers claim. Hence, when some investors get their account statements, they cross check to ensure that the charges are accurate. When you are constantly overcharged, reconsider your choice of the stockbroker.

Poor Customer Relations

Apart from few big stock broking firms that have desks dedicated to the customers’ complaints, many stockbrokers do not have good customer relations. When brokers pay little or no attention to the complaints of investors or treat them shabbily, it is an invitation to quit such a firm.

Before Changing 

If you have made up your mind to quit your stockbroker due to some of the reasons enumerated above, then you need to begin a search for another one – having in mind some of the factors stated earlier. Smart Investor advised that in searching for a new broker, you must exercise more caution to be sure that your next stockbroker will not have the same trait as the first. 

Do the following things before you finally leave the stockbroker. First, talk with your account executive about your intention to move your account to another stockbroker and state your reasons. This is not intended to hurt them but to help them grow. It is possible that the reasons for quitting will make them to re-evaluate their weaknesses and reposition. Second, ask for an Inter-Member Transfer form duly executed by the shareholder, the resident stock broking firm (your current stockbroker) and the target stock broking firm (your prospective stock broking firm), letter of Transfer of Shares addressed to the Director-General of the NSE and copy of CSCS Statement containing  your shares being transferred.

 

(Source: ThisDay)