Learning about shares: Brokers the guides through investment jungle

How do you go about investing in the sharemarket? Olympic champion and first-time investor BARBARA KENDALL continues her quest for answers.


With Dan Dividend's help over the summer holiday, I feel I've got a grasp on the basic concepts of investing in the sharemarket.

I'm ready to take the plunge and buy some shares. But there are a thousand questions I want to ask Dan along the way.

Number one on the list is finding a broker. I want to know more about what brokers do. And more importantly, should I feel comfortable handing over my savings to them?

Dan Dividend responds: Brokers are the point of contact between you and the sharemarket.

Formerly members of the stock exchange, they are now accredited as NZX Firms or individual NZX Brokers. They're highly qualified and licensed to trade shares through NZX's computerised trading network.

From Whangarei to Invercargill, there's a broker near you. NZX has a directory of firms on its website, www.nzx.com.

Brokers do far more than just buy and sell shares. They're investment professionals, who are there to help you reach your financial goals.

Whether you're confident enough to simply place a buy or sell order over the phone or internet, or you want the full bells-and-whistles advisory service and an investment plan to suit, the choice is yours. Bear in mind that you get what you pay for.

Brokers have important relationships with companies, too. They act as advisers for companies listing on the sharemarket and help them to raise capital, sometimes through an issue of shares for sale to the public.

Good brokers do their homework It's an information jungle out there. Successful investors are investors who get all the information that's available on listed companies, collate it, study it and apply it to their investing.

"But I've got a job, a family, a cat and a goldfish to look after - where on earth do I find time to do all that?" I hear you ask.

No matter. Brokers and analysts working in NZX Firms make it their job to grab all the information released by companies and about companies. They drill it down, analyse it and make it available to their clients in a user-friendly format.

They've worked hard to earn your trust.

Brokers aren't fast-talkers in power suits. Customer service and integrity are critical to their success and they've done the hard yards to meet the standards set by NZX.

First, they must complete the NZX Diploma, which involves studying six papers and passing examinations. They must then work for three years at an NZX Firm to gain NZX accreditation.

Once accredited, brokers must comply with rigorous conduct rules, regulations and a code of practice. They face sanctions for breaching the rules, which are designed to protect investors and make sure the market is a fair, level playing field.

There are also strict rules for handling clients' money. Each NZX Firm must have a trust account specially for client funds at their bank, which is the place you deposit money to pay for your shares.

All that ensures brokers are a pretty credible bunch.

Opening an account with a broker is fairly straightforward. Ask for the firm's application pack and fill in the form. You'll need to supply, at minimum, your bank account number and identification.

Brokers are expected to "know their clients", so they should take steps to ensure you are who you say you are, as well as ensuring the investments you make are appropriate to you.

This often involves requesting extra personal and financial details.

NEXT WEEK: We look at the different types of orders you can place with your broker. Until then, feel free to email Dan Dividend with your questions.