(1) Get a Broker
(1) Get a Broker
Setting Up a Global Brokerage Account
By Simon Angelo
When I bought my first shares at the age of 17, you had to go see a stockbroker. He had a wood-panelled office in the centre of town. And he’d discuss the stocks you intended to buy. Then he’d submit your order. Some weeks later, you’d receive an elaborate share certificate in the mail with the company crest atop.
Boy, have things changed.
Now brokerage is electronic and online. Share certificates are fast becoming a thing of the past. The global norm seems to be holding shares through a nominee arrangement.
That means you don’t physically own the shares yourself. The brokerage holds them on your behalf as a ‘nominee’.
So, when you look at the largest holders of shares in the biggest companies, you’ll often see names like ‘HSBC Nominees’.
Doesn’t mean HSBC is owning those shares. It means it’s holding them for numerous clients as a nominee.
Is it safe?
Well, under FINRA (US Financial Regulatory Authority) rules, brokers must segregate client assets in separate accounts. This means your shares held in custody by your broker can’t be mixed in with their own business and trading accounts.
But I look for further protection.
In particular, external compensation arrangements should a broker or financial institution go into liquidation.
Source: SIPC
SIPC — the Securities Investor Protection Corporation is a federally mandated corporation that provides a further degree of protection to investors using their members.
According to their website:
‘SIPC protects against the loss of cash and securities — such as stocks and bonds — held by a customer at a financially-troubled SIPC-member brokerage firm. The limit of SIPC protection is $500,000, which includes a $250,000 limit for cash. Most customers of failed brokerage firms are protected when assets are missing from customer accounts.’
‘There is no requirement that a customer reside in or be a citizen of the United States. A non-U.S. citizen with an account at a brokerage firm that is a member of SIPC is treated the same as a resident or citizen of the United States with an account at a SIPC member brokerage firm.’
You should therefore select a broker that is a SIPC member. Or, in the UK, part of the FSCS (Financial Services Compensation Scheme). You can learn more about SIPC here, and FSCS here.
Many brokers based in other jurisdictions have no external protection. In those cases, I require direct ownership of the stocks with my name/trust on the register.
Brokerage size and locations
Beyond this, I look at the broker themselves. In particular:
- Sizable operation with no debt, providing a robust business.
- Multiple headquarters around the world. If New York is down, Sydney or Hong Kong can provide me access to my account.
- High levels of staff engagement, preferably invested in the business.
- A positive financial rating and outlook from the global ratings agencies.
- A long history of successful operation, preferably with minimal regulatory breaches.
- A low-cost, online brokerage available wherever I am in the world.
One brokerage that may fit these requirements is Interactive Brokers LLC.
Interactive Brokers (IB) was founded in 1978 by Thomas Peterffy. Today, it holds total client assets in excess of $128 billion in 607,000 individual client accounts.
They cover 125 markets, 31 countries, and 24 currencies. They operate the largest electronic trading platform in the US by number of daily average trades.
The company has $7.2 billion in equity capital and is substantially owned by its employees. In 2018, of their 1,413 employees, 1,369 owned company stock.
The company also leases offices in Chicago, Washington, West Palm Beach, Montreal, Vancouver, Boston, San Francisco, Secaucus, Zug, London, Tallinn, Budapest, St Petersburg, Vaduz, Mumbai, Hong Kong, Shanghai, Sydney, and Tokyo.
More than half of the company’s customers reside outside the United States — in approximately 200 countries.
But don’t take my word for them. Do your own research. A good start is by downloading their Annual Report.
And you can check their SIPC membership here.
Note: our Principals currently use this brokerage and we may receive a small referral fee for accounts that are held for a full 12-month period. Should you wish to use their service, please click on the link above to commence a local application. Any use of this broker, any other broker or third party is entirely at your own risk.
Compare them to other local and global brokerages.
One alternative is Ameritrade. Ameritrade was founded in 1971, has about $8 billion in equity capital and 9,183 employees.
They also hold SIPC membership
