Brokers usually charge a flat rate up to a certain amount, and then fees are charged on a sliding scale according to the value of the transaction. Below are two tables showing the approximate costs of an average advisory and non-advisory broker.
|$0 - $50,000||2.5% with a minimum of $90|
|$50,000 - $100,000||1.5%|
*These brokerage rates are a sample indication of advisory brokerage costs, based on Bell Potter’s costs as at January 2007. They are only indicative and are usually negotiable.
|Trade Execution||Cost for Minimum||Cost Beyond Minimum|
$19.95 up to $10,000 transaction value
$29.95 up to $25,000; 0.12% above $25,000
|Internet||$29.95 up to $10,000 transaction value||0.31% above $10,000|
|Phone||$39.90 up to $10,000 transaction value||0.40% above $10,000|
*These brokerage rates are a sample indication of non-advisory brokerage costs, based on CommSec’s brokerage costs as at January 2007. The Internet preferred rate in this example refers to trading on the Internet, being CHESS sponsored by CommSec and settling through an investment account held with CommSec.
As you can see, the associated costs are very different depending on what type of broker executes the transaction. As expected, the advisory broker would cost the most at roughly $90 minimum, whereas the minimum with a non-advisory broker is more likely to be around $20.
Example - you want to buy $60,000 worth of Telstra. Should you decide to trade online with a non-advisory broker (Internet preferred rate), this would cost you $71.95. We derive this figure as follows. The cost is $29.95 up to $25,000 and 0.12% above $25,000. So the cost is $29.95 plus 0.12% on whatever we are spending above $25,000, which is $35,000 in this example.
In contrast, the cost with an advisory broker could be as high as $900! This figure is derived by taking 1.5% of the transaction total of $60,000. Admittedly, it is possible to negotiate a slightly better rate with an advisory broker, but it won’t ever compete on price with a non-advisory broker.
It is important to remember that brokerage rates do vary between different brokers, even amongst those providing similar services.