Personal Finance: Buying shares? First pick your broker

understanding the stock market; A luxury service costs money. So decide how much you want to pay your stockbroker

Shares can be bought or sold only through a stockbroker who is a member of the London Stock Exchange. Share-dealing services come in many forms: by phone or post, and in person.

You will see advertisements for telephone share-dealing services in newspapers and magazines. Many people use the services offered by their bank or building society, while others prefer to deal direct with a broker. It depends on the level of service you require.

The service offered by telephone and in the high street tends to be "no frills". The term used to describe this basic buying and selling of shares is the somewhat macabre phrase "execution only"; the institution will undertake your instructions, but will not give investment advice.

This does not mean that they will not guide you through the procedure for the transaction. On request, some will also provide basic information such as the current price, yield and the p/e ratio. However, should you be undecided as to which of two shares to purchase, no advice will be forthcoming.

This is perfectly adequate for anyone who knows precisely what they want. It also has the advantage of being inexpensive. Typically, for deals below pounds 5,000, the charge is 1 per cent on the value of the transaction, subject to a minimum of pounds 20. If periodically you are likely to want to telephone for basic information, do check that the company will provide this.

It is easy to set up an execution-only arrangement. As your bank or building society already know you, this will be a mere formality. However, where you are not known, you may be asked to give your address and banking details in addition to providing some form of identity.

If you would like to control your own portfolio of shares, but would like the safety net of being able to fall back on the opinion of a professional, you require an advisory facility. This is a basic service available from traditional stockbrokers, and is more expensive than the execution only share dealing that is available in the high street. The commission for the deals, which is calculated as a percentage of the shares traded, will include an element for the advice.

By opting for an advisory service, you are establishing a relationship with a broker. Normally there will be an initial interview, which is conducted without a fee being charged. Do your homework before this, for in order to conform to the regulatory requirements, the broker will have to complete a "fact find". He will want to know details of your income, commitments and assets, whether you are looking for income or growth, and your attitude towards risk.

It is only by asking such questions that the broker will be able to give you good advice based on your circumstances. Many investors consider that the higher commission is well worth paying to have advice readily available. However, do not abuse the service by constantly telephoning for a chat if you deal only occasionally. Should you develop a good rapport with the broker, you could well find that you receive a phone call if an investment opportunity arises which he or she considers may interest you.

Many stockbrokers and all institutions offering private banking offer a complete portfolio management service to clients. This comes in two forms - discretionary and advisory. With a discretionary arrangement, the service provider takes full control of the portfolio, buying and selling shares with the aim of maximising the client's objectives. The advisory form means that the changes are made only after consultation with and agreement by the client. Typically, the charges for such services are 1 per cent of the value of a portfolio up to pounds 250,000 (minimum pounds 1,250), plus dealing costs. These services are not for small investors.

If you decide upon a basic advisory as opposed to an execution-only service, you need to find a broker who will offer you what you want at the price you are prepared to pay. The Association of Private Client Investment Managers and Stockbrokers (APCIMS) publishes a directory listing all stockbrokers who provide a service to private investors.

This outlines the services each firm provides. Do your research and go and see those in your short list before deciding which one is for you. Brokers who have a high minimum commission are politely saying that they do not cater for small investors.

For a copy of the directory of stockbrokers, contact APCIMS, 112 Middlesex Street, London E1 7HY (0171-247 7080).