How to avoid high charges and fees when buying Irish shares
Be careful how and where you invest as some stockbrokers could gobble up as much as a fifth of a small punt on the markets
The cost of buying Irish shares could be as little as the price of a take-out cup of coffee - or as much as a few hundred euro if you're a small investor, depending on how and where you buy them.
Some stockbrokers charge small investors 100 times more than others do for the purchase of shares and so the cost of buying shares could come to as much as a fifth of the money you have to invest - particularly if you're a small investor who deals with a traditional stockbroker. This is because the annual charges and administration fees you're hit with if you open an account with a stockbroker can be high - as well as the broker's commission.
The way you buy your shares can also have a big impact on the fees you pay. Some stockbrokers charge twice as much if you buy shares from them over the telephone rather than online.
These are some of the findings of a survey by The Sunday Independent into the cost of buying €1,000 worth of Irish shares. We included five of the country's top traditional stockbrokers - Campbell O'Connor, Cantor Fitzgerald, Davy, Goodbody Stockbrokers and Redmayne - in our survey. We also included discount online stockbrokers such as Degiro, TD Direct Investing (TDDI) and IG. The survey examined the cost of buying shares on an execution-only basis as this is usually the cheapest way to buy shares. With execution-only, the stockbroker offers no advice on the shares you want to buy and simply carries out your instructions to buy a particular share.
The cost of buying shares through discount stockbrokers such as Degiro, IG and TDDI brokers is typically a fraction of the cost of buying through a traditional stockbroker.
It only costs €2.40 for an Irish person to buy €1,000 worth of Irish shares through the Dutch online broker degiro.ie - assuming the shares are listed on the Irish Stock Exchange. Buy those shares over the telephone from Goodbody instead and the cost of doing so is almost 100 times more. Unlike some of the larger traditional stockbrokers, there is no charge to open an account with Degiro.
Degiro is not regulated here by the Central Bank but instead uses EU 'passporting' rules to operate across Europe. It is regulated in The Netherlands by the Dutch Central Bank and the Dutch authority for financial markets.
The online stockbroker IG, which is headquartered in London, has an office in Dublin and other European and international cities. It costs €10 to buy €1,000 worth of Irish shares from IG in Ireland - as long as you buy the shares online. Buy the shares over the telephone instead and the cost of doing so is €50. There are no charges to open an account with IG.
TDDI is an online broker which was recently bought by the British company, Interactive Investor. It costs €20 (plus British VAT of 20pc) to buy €1,000 worth of Irish shares through TDDI (tddirectinvesting.ie ) - as long as you buy the shares online. Should you buy the shares over the telephone, the cost is €45 (plus VAT). There are no charges to have an account with TDDI as long as you trade at least once every six months or maintain a minimum portfolio value of at least €5,000. Otherwise, there is an account charge of €30 (plus VAT) every six months. For this reason, TDDI might not be suitable for a small investor making a one-off purchase a €1,000 shares as account charges would build up over time.
For small investors who wish to stick with traditional stockbrokers, Redmayne Bentley Stockbrokers in Cork is the cheapest of such stockbrokers included in our survey. It costs €35 to buy €1,000 worth of Irish shares through Redmayne - including the stockbroker's minimum commission of €25 and a €10 compliance and settlement charge. There is no charge to open an execution-only account with Redmayne.
'Campbell O'Connor is also one of the cheapest traditional stockbrokers for a small investor. The Dublin stockbrokers charges €40 commission if you're buying €1,000 worth of Irish shares and this is the only fee you'll pay - as long as you hold the share certificate yourself. Should you not wish to hold the share certificate for your Irish shares but would prefer Campbell O'Connor to do so, you need to open a custody account with the stockbroker. As it costs €50 a year to open an account with Campbell O'Connor, this would bring the total cost of buying your €1,000 of shares to €90 - assuming you sell your shares within a year.
'It's expensive to buy shares through Davy and Goodbody if you're a small investor making a one-off purchase - particularly if you buy over the phone. It costs €220 to buy €1,000 worth of Irish shares from Goodbody over the phone as Goodbody charges €100 commission on such a transaction as well as an annual account fee of €120 (plus 23pc Irish VAT). The cost of buying the shares online from Goodbody is less than half the price of doing so over the phone. It costs €85 to buy €1,000 worth of Irish shares from Goodbody online, including an annual online account fee of €60 (plus VAT) and €25 commission.
It costs €94.99 to buy €1,000 worth of Irish shares from Davy online, including commission of €14.99 and an annual maintenance fee of €80 (plus VAT), assuming you keep your account for the year. (Davy's online maintenance fee is charged at a rate of €20 every three months.) Should you buy your shares over the phone, the cost is €145 as Davy charges €100 commission and a €45 annual nominee fee (plus VAT).
It costs €95 to buy €1,000 worth of shares from Cantor Fitzgerald, including commission of €55 and a €40 contract charge. Cantor also has a €275 annual administration fee but you may not have to pay this if you're only making a one-off purchase of shares. "In total, an execution-only client only seeking to make a single transaction of €1,000 and not to maintain their account will pay €95," said a spokeswoman for Cantor. "They will incur a further €275 (advisory annual charge) if they wish to maintain an investment or make multiple investments over the course of a year."
Merrion Private typically only caters for large investors, so we didn't include it in our analysis of stockbroker charges.
Should you buy and sell shares regularly throughout the year, online accounts can be the cheapest way to do so as any account maintenance charge will usually pay for itself.
However, should you be only making a one-off purchase and the account maintenance fee on an online account be high, it would be better to head elsewhere to buy your shares. Foreign exchange charges can add up if you're buying non-euro denominated shares.
"Foreign exchange charges can be a substantial and unreported charge - often between 1pc and 2pc [of the amount invested], depending on the transaction size," said Rory Gillen, founder of Gillen Markets.
Tax is another charge you face. You'll typically pay 1 pc stamp duty when buying Irish shares and 0.5pc stamp duty on British shares. Some shares are exempt from stamp duty, such as Irish shares listed on the Enterprise Securities Market (an offshoot of the Irish Stock Exchange).
VAT can significantly increase the fees charged as some fees are liable to VAT. The annual maintenance fee of €80 charged by Davy on its online accounts (if you hold an account for a year) increases to €98.40 once VAT of 23pc is added.
Irish residents typically pay Capital Gains Tax (CGT) at a rate of 33pc on the profits made from the sale of shares - though the first €1,270 of gains made by an individual in a tax year are exempt from CGT. Income tax may also be due on any dividends earned from shares.
Between tax and stockbroker fees, buying and selling shares can be costly. So know exactly what charges you'll face before making an investment.
Sunday Indo Business