Stay sharp if you're buying shares – and beware monster fees
Published 23/03/2014 | 02:30
Earlier this month, two American billionaires made hundreds of millions of euro after selling off some of the Bank of Ireland shares they had snapped up cheaply in the depths of the Irish banking crisis.
The pair – Wilbur Ross and Prem Watsa – sold a chunk of their stake in BoI for about three times the price they had paid for the shares in 2011.
If the notion of tripling your money on Irish shares has tempted you to buy some, tread carefully – past returns are no guarantee of future gains. Along with the risks, you should also be acutely aware of the costs that come with investing in shares.
Most people deal with stockbrokers when buying shares directly but choose your broker well – as well as the way you buy your shares from them. Otherwise, you could pay 12 times more than you need to when you're buying your shares.
While online trading groups like TD Waterhouse are cheaper, most people still use stockbrokers for buying or selling shares.
The cheapest way to buy shares from a stockbroker is usually through its execution-only service, where the stockbroker offers no advice on the shares you want to buy – and simply buys the shares on your behalf. But even with execution-only, the commission for buying shares could come to as much as a 10th of the money you have to invest.
However, the killers when it comes to buying shares are the annual charges and administration fees you'll be hit with if you open an account with a stockbroker – particularly if you're a one-off small-time investor.
* Cheapest way to
buy €1K of shares
So if you've got €1,000 to invest in Irish shares and you're happy to buy them on an execution-only basis, which stockbroker works out cheapest?
The Sunday Independent surveyed the charges of five of the country's top stockbrokers – Campbell O'Connor, Cantor Fitzgerald, Davy, Goodbody Stockbrokers and Merrion Capital.
If you're simply making a one-off purchase of shares and you have no plans to buy any more, the cheapest way to buy shares is to avoid opening an account with a stockbroker – and to hold your share certificate yourself.
If you must open an account with a stockbroker to buy shares, request that a share certificate be sent out to you as soon as possible – and once you get this certificate, close the account. By doing so, you should be able to limit the administration or account fees you'll pay.
The cheapest stockbrokers you can buy €1,000 worth of shares from on an execution-only basis is Campbell O'Connor. The Dublin stockbrokers charges €40 commission if you're buying €1,000 worth of Irish shares – and this is the only fee you'll have to pay as long as you hold the share certificate yourself.
It costs €85 to buy €1,000 worth of shares from Cantor Fitzgerald, including commission of €55 and a €30 contract charge. You must pay Cantor an annual fee of €120 for execution-only accounts.
"To purchase stock, a client requires an account in Cantor – all accounts pay either a management fee or the annual account fee of €120 per annum," said a spokesman for Cantor. "We can issue the certificate to the client and then close the account, but the account fee would be charged pro rata for the length of time the account is open."
One of the most expensive stockbrokers to buy €1,000 worth of shares from is Merrion Capital.
You'll pay a €100 transaction fee to buy the shares through Merrion's myfund Execution account. If you keep your account open, you'll also be hit with a custody fee of €100 every three months – which adds up to €400 a year. So after one year, the fees will have clocked up to half of your original investment.
Merrion typically caters for wealthy investors – so if you're a small investor, you should probably head elsewhere.
With some stockbrokers, it can work out cheaper to buy shares online than over the telephone – but you'll be hit with an annual charge if you do so. For example, if you buy €1,000 worth of shares from Davy over the telephone, you'll be charged €100 commission. If you buy those shares online through a Davy Select Trading account, you'll only pay €14.99 commission.
The catch, however, is that you also have to pay a maintenance fee of €20 every three months (which adds up to €80 a year) to have a Davy Select Trading account – so the cost of buying those shares online and holding them for a year almost works out as expensive as the telephone trade does.
Furthermore, you can avoid paying an account fee if you buy shares over the phone from Davy and hold on to the share certificate yourself.
Goodbody Stockbrokers' online account is cheaper than Davy's if buying €1,000 worth of shares. You'll pay €32 commission with Goodbody Online and an annual account maintenance charge of €21.49 – which adds up to €53.49.
If you don't buy your shares online from Goodbody, you'll pay €100 commission to buy €1,000 worth of shares over the phone – as well as an annual maintenance fee of €80 if you open an execution-only account.
If you buy and sell shares regularly throughout the year, online accounts can be the cheapest way to do so as the account maintenance charge will usually pay for itself over time.
Another major cost to bear in mind when buying shares directly is tax. You will pay stamp duty on the value of the shares you buy. You must also pay tax on any money you make on your shares.
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