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4. The Role of the Broker Dealer
In a previous column we explained that all investors wishing
to trade on the Eastern Caribbean Securities Exchange must
do so through licensed market intermediaries, called brokers
dealers and brokers. This week we will look at the role of
the broker dealer.
Broker dealers are financial intermediaries that provide
a wide range of financial and investment services to investors
including the execution of trades, advice on which securities
to buy or sell, as well as on financial planning. A broker
dealer can help you to understand and make future investment
decisions with greater confidence. A broker, on the other
hand, is only authorised to buy and sell securities as instructed
by their clients. Seasoned investors may therefore prefer
to use the services of the broker, while new investors can
benefit from the experience and knowledge of the broker dealers.
Let us explore the role of a broker dealer in the context
of the Eastern Caribbean Securities Market.
All financial intermediaries operating in the Eastern Caribbean
Securities Market must be licensed by the Eastern Caribbean
Securities Regulatory Commission, (ECSRC) which has been designated
as the authority responsible for licensing all intermediary
firms doing business in the Eastern Caribbean Securities Market
under the Securities Act 2001. The financial professionals,
that is the principals and representatives of the firms, must
also be licensed, completing ECSRC certification workshops
and examinations, as well as training by the ECSE in the use
of the software systems that drive the operations of both
the primary and secondary markets.
One of the functions of the broker dealer is to provide
personal service and quality advice to the clients. The broker
dealer will need to clearly understand your financial needs
and your investment objectives in order to provide appropriate
financial advice or recommend the products best suited to
your needs. You will need to answer questions pertaining to
your financial status, investment objectives, and your ability
to incur risk. Expect questions such as: What level of savings
do you currently have? What types of investments do you currently
own? What other assets do you own, for example, a car, a house,
land? What is your average monthly income and what expenses
do you have? Why do you want to invest - for retirement, to
purchase a home or to save for college?
In order to trade on the ECSE, you will need to establish
an account with the broker dealer, who will trade on your
behalf. You will need to provide a photo ID, and complete
the required forms
Broker dealers work on a commission basis, with commissions
and fees charged varying from one broker dealer to another,
in accordance with the level of services provided, the value
of the client's assets under management, and the fee structure
of each broker dealer. However, regulations have capped commissions
at 5% of the value of the total investment that investors
would have authorised the broker dealer to trade on their
behalf.
A good broker dealer will seek out good returns for your
investments, of course while observing a prudent approach
to financial planning and providing you with appropriate investment
strategies. Persons who are qualified to invest on their own,
without the support of expert advice, can contact a broker,
who will execute the trade as per their instructions. But
do you have the confidence to risk your future on what you
know about investing? If your answer is no, then you need
the services of a broker dealer.
Clearly your choice of broker dealer is critical. Before
making your choice, shop around. Ask questions. Speak to persons
who may have had experiences with one or more broker dealers
and listen to their reviews. Visit several broker dealer firms.
Evaluate their rate schedules, as well as their ability to
provide you with the services you need. Having chosen a broker
dealer, make sure that you receive regular statements detailing
your investments and their performance. Evaluate the performance
of your investments. On average, did they increase in value
or were there significant losses? Answers to these questions
would indicate whether you have selected a broker dealer that
is ideal for you or if you should look for another broker
dealer to take care of your investments.
And if you have selected a broker who you believe has reneged
on his obligation to you as a client then you have recourse
to the regulatory authority, which is the Eastern Caribbean
Securities Commission.
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The Role of the Broker Dealer