Selecting a broker

[faheem]

[This was deleted from the thread I originally posted it on, because it was deemed off topic. I spent a lot of time writing it, and I think it has useful information, so I’m reposting it here, slightly adapted. I wonder if it will get deleted, again - we’ll see.]

Hi @alexander,

@alexander

But who are the solid names. I have had bad experience with Motilal Oswal (When I did not know much, they sold wrong things to me for their benefit)
Edelweiss charges 0.5%/transaction as brokerage for people with smaller Portfolios. It is too high imo.
Angel Broking, Sharekhan etc. do not inspire confidence for some reason.

Maybe the brokerages associated with banks are better? HDFC, ICICI etc.? Have never tried those…
[Sorry for diverting the topic here from stock analysis]

I faced the same question recently. The standard commercial rate is 0.5%. With an additional 18% GST, that is around 0.6. Transaction and securities taxes add around 0.1%. So one is looking at 0.7%. I agree that is expensive.

Here is what I did. NSE has a list of complaints by broker - https://www1.nseindia.com/invest/content/arbitration_reports/report_1c_2019_20.htm

You can download this as an Excel file (see link at bottom) and do some analysis on it. From Excel you can covert to CSV or TSV, and from that import into an RDBMS like SQLite or PosgreSQL, or just use Python Pandas or R.

I think selecting a broker isn’t that different from selecting a company to invest in. There are two important fields to look at here.

1. UCC OF ACTIVE CLIENTS

2. PERCENTAGE OF NUMBER OF COMPLAINTS RECEIVED AS AGAINST NUMBER OF ACTIVE CLIENTS

I’d do a sort on these two fields.

You want a brokerage with a reasonable number of clients. And you want that percentage to be low. Somewhere around 0.01% is good. Then the other thing to check is whether the broker has a local office. It’s even better if their main presence is local. So you go over there if you have problems. Also, you can only use delivery instruction slips if your broker has a local presence. If it passes these preliminary filters, see if you can find people saying bad stuff about them online. If not, call them and ask what kind of brokerage charges they are willing to offer.

Incidentally, after I did this, I found an article online which also suggesting looking at NSE’s complaint record. I can’t remember where that article is, though.

I did this and tentatively settled on Prabhudas Lilladher, who have their head offices in Bombay, at Worli. They have a reasonably low complaint rate - in that list I sent you they have 5 for the year. And they offered me a low brokerage rate. I didn’t know anything about them when I found their name, but it seems they are an old and well established firm in Bombay. However, I’m extremely slow and careful when going through the brokerage application process (some might say neurotic), and they seem to have lost interest in me, and my application currently appears to be in limbo. That’s always a risk with brokers - their perspective on their services is very different from yours as a client. (So don’t take this as a recommendation for PL, since I have not actually used them.)

I think that a lot of brokerage firms, other than the big ones, are desperate for business, so you are likely to get a good rate if you call around.

But just because a brokerage house has a low complaint rate, do not assume they are going to give you good financial advice. As always, be careful. And as I’ve mentioned earlier, I would avoid signing POAs if possible, regardless how reputable you think a broker is.