Before investing in the capital market, choosing an efficient brokerage firm is very important for an investor. Brokerage firm lets you open a BO account as an identification of the investor, through which all investments are done. A Brokerage Firm is a financial intermediary through which BO (Beneficiary Owners) Account is opened that offers investors to have access to different investment opportunities such as stocks, bonds, Exchange Traded Funds (ETF) and mutual Funds.
Like any other bank account, the user has to put money in his/her BO account. This account balance is used to purchase stocks, bonds, mutual bonds, ETFs, and other financial assets. It can also be used to invest in short-term and long term investments. A brokerage firm holds clients’ accounts and manages client’s orders against it. It also acts as a custodian to the securities held in the account. A brokerage firm or the broker is an intermediary among the user and the market, buying and selling investments as per the user’s instruction.
So for the safety of our financial assets, we have to choose an efficient and trustworthy brokerage firm. Now the question is how we know which one is trustworthy. We have discussed some facts that tell us how trustworthy the brokerage firm is.
The attributes that must be given attention to while choosing a Brokerage firm are explained below-
History of the organization
For how long the company has been operating in the capital market is one of the indicators of the trustworthiness of a broker. Apart from that their customer base, transaction summary, digitalization history, variety in services, etc. can be checked before appointing the firm. If the potential firm is found to be working in the financial sector for a long time or to be consistently providing services to its clients without much error, then it can be chosen for further inspection.
Management or owners
Often when there is a financial fraud occurs, in most of the cases it is found that someone from the management or the owners are involved in such criminal activities. So before choosing a brokerage firm, a client should also check the responsible face of the organization and their positions in the society. In this case, their financial condition, default rate, previous engagement in illegal activities (if any) can be taken under consideration.
Credit rating
Brokerage firms that provide financial services to their customers are often rated by credit rating agencies. In order to measure the credibility of the firm, we can check if the firm is rated by any internationally renowned credit rating agency or not. These ratings are assigned based on different criteria such as credibility, management quality, capital adequacy, and Business risk, etc. There are many credit rating grades which identify the financial capacity of the firm. There is a chart attached explaining credit rating grades and what they imply.
| GRADES | IMPLICATION |
| AAA | Extremely strong capacity to meet financial commitments |
| AA1, AA2, AA3 | Very strong capacity to meet financial commitments and very low credit risk |
| A1, A2, A3 | Strong capacity to meet financial commitments, but susceptible to the adverse effects of changes in circ*mstances and economic conditions. |
| BBB1, BBB2, BBB3 | Adequate capacity to meet financial commitments but more susceptible to adverse economic conditions or changing circ*mstances, also have moderate credit risk. |
| BB1, BB2, BB3 B1, B2, B3 | Inadequate capacity to meet financial commitments Weak capacity to meet financial commitments and high credit risk. |
| CCC1, CCC2, CCC3 | Very weak capacity to meet financial obligations and credit risk level is very high. |
| CC | Extremely weak capacity to meet financial obligations, likely to default, and some prospect for recovery of principal and interest. |
| C | Highly vulnerable to non-payment, typically in default, and a little prospect for recovery of principal and interest. |
| D(DEFAULT) | Bankrupt |
Credit rating can be both long-term and short term. So credit rating is a good measure of the credibility and trustworthiness of the brokerage house. There are eight credit rating agencies approved by Bangladesh Securities and Exchange Commission (BSEC) currently operating in Bangladesh.
The list of Credit rating agencies approved by BSEC in Bangladesh
| Credit Rating Information and Services Ltd (CRISL) |
| Credit Rating Agency of Bangladesh Ltd (CRAB) |
| ARGUS Credit Rating Services Ltd |
| Alpha Credit Rating Limited |
| Emerging Credit Rating Ltd |
| National Credit Ratings Ltd |
| The Bangladesh Rating Agency Limited |
| WASO Credit Rating Company (BD) Limited |
Word of mouth
When existing clients share their personal experience with others, it is denoted as word of mouth. It can be both positive and negative. To judge the potentials of a firm, one can communicate with the existing clients about their service experience and area of improvement for the firm.
Fund withdrawal modes and Minimum required time
Fund withdrawal is a complex process as it requires a few steps of safety measures in the process. We have to check if the Brokerage firm is able provide fund withdrawal services in multiple platforms such as website and SMS requisition or mobile app etc. and how flexible these platforms are to use. However, It is also necessary to know if the firm can liquidate as soon as the client gives fund withdrawal orders within the minimum time required for fund withdrawal.
Variety in fund transfer options
A brokerage firm can offer different modes of deposit and withdrawal of funds such as BEFTN, NPSM, RTGS, and other mobile banking platforms, etc. for the ease of their clients. Minimum required time and flexibility in each fund withdrawal platform can be examined for a better understanding of the firm’s ability to provide prompt fund withdrawal services.
Some other facts that can be taken under consideration are-
- Understanding your needs and requirements: Before selecting any brokerage firm the user must figure out what kind of investments he/she wants to make, his/her knowledge of the investment, and what kind of brokerage firm he/she is looking for.
- Compare costs and incentives: it’s important to compare brokers pricing schedule, the cost of buying, selling and holding investments and other securities and service charges.
- Investment style: The decision of choosing a brokerage should depend on the user’s investment style trader or investor. A trader doesn’t hold his investment, and interested in quick capital gains from short term investments, therefore should look for brokerage firms offering low trading fees. On the other hand, investors prefer holding his investment and so should look for firms offering promising long term services.
- Consider services and offers: Considering what services and discounts the brokerages are willing to offer to their clients.
- Consider information source: It’s important to consider the information source, how the brokerage firm is educating their customers- videos, podcasts, user forums, or written articles, blogs, and the reliability and quality of that information.
- Ease of depositing and withdrawing: For some brokerage firms it’s quite complicated depositing money. It’s also important to have flexibility in moving money from the user’s account.
- Availability of necessary information: we should also consider the fact if the client can avail of necessary data and information such as. Transaction data, ledger, and portfolio balance, etc. easily when required.
Choosing a brokerage firm is like taking a first step in the investment world. By selecting an efficient Broker, investors can get rid of all the unnecessary burdens from his shoulder and invest their time and energy for more productive outcomes.
SO WHAT ARE WE WAITING FOR!!
LET’S GO FIND OUR ULTIMATE BROKER TODAY!!
