Choosing a broker is one of the first practical decisions an investor makes. It is also one that many people rush through, selecting based on an advertisement, a friend's recommendation, or whichever platform appears first in search results.
This is understandable. Brokers seem interchangeable. They all offer access to the same markets. The differences appear marginal. But those differences compound over time, and some matter more than they first appear.
This article provides a framework for evaluating brokers. It does not recommend any specific platform. Instead, it outlines the factors worth considering and the questions worth asking before opening an account.
This is general educational information, not personal financial advice.
Why Broker Choice Matters#
A broker is the intermediary between you and the market. Every trade you make, every share you hold, flows through this relationship. The broker affects:
- What you pay. Fees, spreads, and currency conversion costs vary significantly between platforms.
- How your assets are held. Custody models differ, with implications for portability and counterparty risk.
- What you can access. Some brokers offer only ASX securities; others provide access to international markets.
- How secure your account is. Security features and practices vary, and the consequences of a breach are severe.
None of these factors is decisive on its own. But together, they shape the experience of investing over years or decades. A broker that costs an extra $10 per trade, multiplied across hundreds of trades, adds up. A custody model that locks your holdings to one platform creates friction if you ever want to move.
The goal is not to find the "best" broker. There is no universal best. The goal is to find a broker that fits your circumstances and to understand the trade-offs involved.
Cost Structure#
Costs are the most visible differentiator between brokers, but they are often presented in ways that obscure the full picture.
Brokerage Fees#
Brokerage is the fee charged for each trade. It can be:
- Flat fee. A fixed amount per trade (e.g., $5, $10, $20), regardless of trade size.
- Percentage-based. A percentage of the trade value (e.g., 0.1%), sometimes with a minimum.
- Tiered. Different rates depending on trade frequency or account size.
For smaller, frequent trades, flat fees tend to be more expensive as a percentage of the trade. For larger trades, percentage-based fees can become significant. Matching the fee structure to your expected trading pattern reduces costs.
Some brokers advertise "zero brokerage" or "$0 trades." These offers often come with conditions: limited to certain markets, offset by wider spreads, or applicable only to specific products. The cost may be hidden rather than absent.
Spreads#
The spread is the difference between the buy price and the sell price of a security at any given moment. Wider spreads mean you pay more to enter a position and receive less when exiting.
Spreads are partly a function of market liquidity (highly traded securities have tighter spreads), but they can also vary by broker. Some platforms add to the market spread as an implicit fee.
When comparing costs, brokerage alone does not tell the full story. A $0 brokerage trade with a wide spread may cost more than a $10 brokerage trade with a tight spread.
Foreign Exchange Costs#
If you invest in international markets, your Australian dollars must be converted to foreign currency. This conversion has a cost, typically expressed as a margin above the mid-market exchange rate.
FX margins vary significantly between brokers, from 0.3% to over 1%. On a $10,000 trade, that is a difference of $30 to $100. For investors who regularly buy international shares, FX costs can exceed brokerage costs.
Some brokers allow you to hold foreign currency balances, reducing conversion frequency. Others convert on every transaction. Understanding how FX is handled is essential for international investing.
Platform and Account Fees#
Some brokers charge:
- Account keeping fees. Monthly or annual charges for maintaining an account.
- Inactivity fees. Charges applied if no trades are made within a certain period.
- Data fees. Charges for real-time pricing or market depth information.
These fees can be waived under certain conditions or bundled into other costs. They are worth identifying upfront.
Custody Model#
How your shares are held matters more than most investors realise.
CHESS Sponsorship#
In Australia, shares can be held through the Clearing House Electronic Subregister System (CHESS). Under this model:
- You receive a Holder Identification Number (HIN).
- Your name appears on the company's share register as the legal owner.
- Shares can be transferred between CHESS-sponsored brokers without selling.
CHESS sponsorship provides direct ownership and portability. If your broker fails, your shares are still registered in your name and can be moved to another sponsor.
Custodial Holding#
Some brokers, particularly those offering international shares or lower-cost trading, use a custodial model:
- Shares are held in the name of a custodian (often the broker or a related entity).
- You have a beneficial interest but are not the registered owner.
- Transferring to another broker may require selling and rebuying, incurring costs and potential tax events.
Custodial holding is not inherently problematic. It is the standard model for many international investments. But it introduces counterparty risk (the custodian's solvency matters) and reduces portability.
Questions to Ask#
- Are my Australian shares held under CHESS or in custody?
- If custodial, what happens if the broker or custodian fails?
- Can I transfer holdings to another broker without selling?
- Are client assets segregated from the broker's own assets?
The answers to these questions affect your risk profile and flexibility.
Market Access#
Different brokers provide access to different markets and products.
Domestic vs International#
Some brokers focus exclusively on the ASX. Others provide access to US markets (NYSE, NASDAQ), European exchanges, Asian markets, or a combination.
If international diversification is part of your strategy, verify that the broker supports the markets you intend to access and understand the associated costs.
Product Range#
Beyond shares, brokers may offer:
- ETFs (most do)
- Options
- Managed funds
- Bonds
- Warrants
- CFDs and other derivatives
A broader product range is not inherently better. Access to complex products can be a source of risk for investors who do not fully understand them. The question is whether the available products match your needs.
Corporate Actions#
When companies pay dividends, conduct share buybacks, or undergo restructuring, brokers handle these "corporate actions" on your behalf. The quality of this handling varies:
- Are dividends credited promptly?
- Are DRP elections handled correctly?
- Are communications about corporate actions clear and timely?
These operational details rarely make headlines, but they affect the day-to-day experience of investing.
Security#
An investment account is a high-value target. Security failures can result in significant financial loss.
Authentication#
At minimum, a broker should offer:
- Two-factor authentication (2FA). A second verification step beyond the password, typically via an authenticator app or SMS.
- Strong password requirements. Resistance to common and weak passwords.
- Session management. Automatic logout after inactivity.
SMS-based 2FA is better than nothing but is vulnerable to SIM-swap attacks. Authenticator apps or hardware keys provide stronger protection.
Account Alerts#
Brokers should notify you of:
- Login from new devices or locations
- Changes to account details (email, phone, bank account)
- Large or unusual transactions
These alerts provide early warning if an account is compromised.
Withdrawal Controls#
Some brokers implement cooling-off periods for newly added bank accounts, preventing immediate withdrawals to unfamiliar destinations. This adds friction for legitimate changes but significantly reduces the risk of theft.
Your Responsibility#
Broker security is only part of the picture. Your own practices matter:
- Use a unique, strong password for your brokerage account.
- Enable 2FA with an authenticator app.
- Do not access your account on public or shared computers.
- Be sceptical of any communication asking for login details or directing you to unfamiliar links.
- Verify the URL before logging in.
Security is a shared responsibility. A broker with excellent security is not protection against a phished password.
Platform and Support#
The practical experience of using a broker matters, especially for long-term relationships.
Platform Stability#
Does the platform work reliably during high-volume periods? Outages during market volatility can prevent you from executing trades when it matters most. Broker track records during past market stress events are worth investigating.
Usability#
Is the interface clear and functional? Can you find the information you need without excessive searching? Poor usability increases the chance of errors.
Support#
When something goes wrong, can you reach a human? How long does it take? Some brokers offer phone support; others are email-only or chatbot-first. The quality of support is invisible until you need it.
Reporting and Tax#
Does the broker provide clear transaction histories, tax statements, and cost base records? Poor reporting creates work at tax time and increases the chance of errors.
Verification and Due Diligence#
Before opening an account, verify that the broker is legitimate and appropriately licensed.
AFSL Check#
Any entity providing financial services in Australia must hold an Australian Financial Services Licence (AFSL) or be an authorised representative of a licensee. The ASIC Connect Professional Registers allow you to verify this.¹
Check that the licence covers the services the broker claims to offer (e.g., dealing in securities, providing custodial services).
Reviews and Complaints#
Search for independent reviews and complaints. The Australian Financial Complaints Authority (AFCA) publishes information about complaints against financial firms.² A pattern of similar complaints is a warning sign.
Terms and Conditions#
Read the terms, particularly around:
- Fee changes (can they change fees with notice? How much notice?)
- Account termination (under what circumstances can the broker close your account?)
- Dispute resolution (what process exists if something goes wrong?)
These documents are tedious, but they define the relationship.
Summary#
Choosing a broker involves evaluating costs (brokerage, spreads, FX margins, account fees), custody model (CHESS vs custodial, portability, counterparty risk), market access (domestic, international, product range), security (2FA, alerts, withdrawal controls), and platform quality (stability, usability, support). No single factor determines the best choice; the right broker depends on individual circumstances and trading patterns. Before opening an account, verify the broker's AFSL status, review complaints history, and understand the terms of service. Broker choice is a practical decision that affects costs and experience over the long term; it warrants careful consideration rather than default selection.
Sources#
- ASIC. (2024). ASIC Connect Professional Registers. https://asic.gov.au/online-services/search-asics-registers/
- Australian Financial Complaints Authority. (2024). Decisions and complaints data. https://www.afca.org.au/what-to-expect/how-we-make-decisions
- ASIC MoneySmart. (2024). Choosing a broker. https://moneysmart.gov.au/how-to-invest/choosing-a-broker