The role of the best stockbrokers is to connect their clients effortlessly to the financial markets. All stockbrokers and investing apps achieve this, with varying degrees of success. 

While the job title of ‘stockbroker’ has existed for hundreds of years, the job has evolved over time, in accordance with new rules, in reaction to new trends, and in response to changing client desires.

The golden era of stockbroking as a profession occurred between 1950 – 1980. During this period of time, retail investor participation in the stock market exploded, and stockbrokers were well-placed to take advantage of this sudden interest. The volume of shares being traded, and the fees that clients were prepared to pay, meant that brokers could easily take home a six-figure payday (in today’s money).

But if you survey the state of the investment management industry today, you’ll struggle to find a thriving full-service brokerage. 

In this article, we’ll trace the roots of stockbrokers back to their origin, and investigate why full-service stock brokerage firms are now almost extinct.

What is a full-service stockbroker?

A full-service stockbroker offers a suite of services, such as financial advice, stock tips, portfolio management, and financial planning.

For such an adviser, the execution of stock trades is only the tip of the iceberg of services and is not the primary creator of value in their businesses.

Instead, the focus is on the personal finance needs of the client in a holistic sense. A full-service stockbroker could hope to become the first port of call for most financial matters outside of their everyday banking. This could include financial planning, financial protection (insurance), investments and savings, retirement & pensions and taxation matters. 

You will notice that a full-service stockbroker is effectively a financial adviser. In the UK, there is no differentiation between the two. From the perspective of the Financial Conduct Authority, a full-service stockbroker will usually be an Independent Financial Adviser (IFA). 

What type of client uses a full-service stockbroker?

There is a common misconception that only those with low financial literacy use full-service stockbrokers. This is simply not true. 

Those with the lowest levels of financial literacy and money skills would not understand the potential benefits of financial planning enough to decide to pay fees to receive such a service. To the uninitiated – a fee of any size is something worth avoiding, even if remaining out of the stock market for the whole of one’s life is the most expensive mistake anyone can make.

Indeed, the clients of full-service stockbrokers understand the need to invest their money rather than simply deposit it in a savings account. Through a series of meetings with their broker, they will also develop an understanding of financial markets and the financial products offered to retail investors.

Many clients of full-service brokers have the knowledge and skill to invest on their own behalf but choose not to because:

• They choose to spend their leisure time on leisure, rather than administration and personal finance.

• They feel reassured placing the responsibility for their investment decisions on the shoulders of a regulated firm.

• They understand the limitations of being an amateur and have more trust in the judgements of a full-time professional who has achieved qualifications.

The origins of full-service stockbrokers

The original breed of UK stockbrokers was highly transactional and operated at the premises of the London Stock Exchange. 

Membership of the London Stock Exchange was strictly limited, due to the physical constraints imposed by trading within a single building. 

This barred wealthy private individuals from trading directly on the market on their own behalf. Instead, they needed to pass orders to a member broker who would place the trade on their behalf at the best price available. And thus a service industry was brought into being. 

As the number of companies on the stock market grew, and trading volumes increased, brokers became part of firms that could efficiently collect orders and pass these to stockbrokers in the field. This meant that each firm could maximise the utilisation of their stockbrokers and spread their operating costs across a large list of clients, which helped with competitiveness.

Member brokers of the LSE have never ceased to exist. Indeed, you can view our full list of LSE member brokers on our dedicated page. 

The development over the 20th century was the use of member brokers to carry out trades routed from other financial institutions. This meant that firms could specialise in serving clients and marketing their services while outsourcing the execution of trades to member brokers invisibly behind the scenes. 

This set the scene for the firms we know as full-service brokers today, such as Pilling & Co, and Redmayne Bentley. These firms diversified their offering to encompass the many different branches of personal finance, to include what we now associate with full-service brokerage: 

• Discretionary management – a broker acts independently to run your portfolio
• Investment management – a broker produces recommendations and acts after your agreement
• Portfolio management – a broker reviews your portfolio annually and suggests changes
• Probate services – a legal professional can deal with the estates of the deceased on behalf of the executor named in a will & testament.
• Tax-avoidance strategies – the financial adviser will explore legal approaches to minimise tax
• Financial planning – the financial adviser will understand your financial circumstances, and goals and will design an investment and protection plan to maximise your odds of success.

How much do full-service stockbrokers charge?

The pricing of different brokers will vary. Some brokers focus on the whole portfolio, levying a fee based on a % of your assets left in their custody. This fee will cover the cost of ‘labour’ associated with a dedicated stockbroker reviewing your investments and in some cases, actively trading. 

Other firms will charge a minimal annual fee but will charge premium execution fees for telephone orders, which reflect the higher costs of giving personal attention to each client order. This is a clear point of differentiation between full-service brokers and discount, execution-only firms that only take orders electronically via a ‘faceless’ ordering form, and that sometimes process trades as a batch rather than in real-time. 

Take a look at the way Pilling & Co describe their real-time dealing service, and you’ll quickly understand why clients with large portfolios are happy to pay for a high level of service:

“Unlike many Stockbrokers, we can deal instantly for you. When you ring us you your call be answered by a qualified stockbroker and you will not be put through several call transfers.

Orders given to our dealers are carried out straight away and not passed to a central office. Delays run the risk of prices being missed. 

Dealing this way, you have our dealers’ undivided attention and this often means an improvement on the dealing price, giving you more shares when buying and greater proceeds when selling. This fact alone could negate some if not all of the commission charges.” – Pilling & Co

The death of full-service stockbrokers

In the 1960s, all stockbrokers were full-service stockbrokers. This meant that when you rang any brokerage to place a trade, you were speaking to a qualified finance professional.

In 2023, you can place a trade with many of the best UK stockbrokers in a couple of clicks, such as the brokers below. In 2010, the lowest trading fee was approximately £5, and by 2020 you could place trades for free.

Discount brokers emerged with the use of computing in commercial settings in the 1980s and only accelerated when the web allowed for a virtually automated trading back office. In 2023, the incremental cost of trading is virtually nothing. 

Full-service brokerages cannot compete with fee-free services. They have prime offices in a nice part of town, and a well-paid team of highly qualified stockbrokers.

Discount brokerages began a race to the bottom that favoured new, asset-light, app-orientated execution services. Legacy brokers with long-term leases, a large headcount and discerning clients have been forced to flee upmarket. 

Full-service firms offer an unrivalled client experience, but this comes at a cost that doesn’t make much sense to the typical retail investor who wants to drip-feed a monthly sum into a couple of Vanguard exchange-traded funds. They’re not looking for an active trader to help them become a millionaire.

Therefore, full-service brokers have become boutiques that serve wealthier clients and therefore cannot hope to capture a large slice of the market. 

Whether a portfolio is £25,000, £250,000 or £2,500,000 it essentially requires the same level of attention, and therefore cost, on the part of an adviser. 

This is why full-service brokers have a high minimum investment which excludes many potential clients. They are aware that the cost of providing financial advice to an investor with a £10,000 portfolio is prohibitively expensive. The cost of regulated advice alone could eat up to 50% of that sum before any money has actually been invested, and therefore this probably wouldn’t be in the best interest of that individual. 

The average UK saver in 2022 had less than £20,000 in savings, according to the Bank of England. 

When we marry together the size of the average pot of savings, with the fee structures of regulated financial advice, it is easy to see why the death of full-service stockbrokers occurred. 

Back in 1960, when consumers had no alternatives, paying premium fees for execution was an acceptable cost of investing in the hope of getting rich quick.

But since then, investing costs have plummeted on so many fronts (such as management charges of passive investment funds), and choice has exploded. Retail investors are much savvier in comparing UK stockbrokers and therefore the age of the discount broker is here to stay.