Passion for various forms of investment a prerequisite in the modern era.

In a world awash with free information, where technology has made it possible to trade in financial markets at virtually no cost, one could ask – is there still a place for stockbrokers?

In boom times, you will hear stories about first-time investors striking it rich. When markets are buoyant, an army of investors often become do-it-yourself (DIY) day traders, turning their backs on professional management and advice. After all, it has never been easier, faster, or cheaper to place a trade on the ASX.

When the boom inevitably ends, profit often turns to panic for the day traders and speculators. It can be an expensive reminder that there is no such thing as easy money.

Stockbroking’s evolution

There has only been an Australia-wide stock exchange since 1987 when the independent exchanges of the six States merged, forming the Australian Stock Exchange. But stockbroking was well-established long before that. By the late 19th Century, exchanges were a fixture of most major cities, and stockbrokers were plying their trade in Melbourne as early as the 1850s. 

Those operations did not change substantially for more than 100 years, until technology began to transform how stocks were bought and sold, and the pace of change has accelerated significantly in recent years. Just as financial markets have changed radically over the last few decades, so has the role of the stockbroker evolved.

The sustainable business model for stockbrokers in 2020 involves far more than simply processing transactions. Instead, the focus is on personalised advice to help clients preserve capital and grow their wealth over the long term. To succeed as a stockbroker in the modern era requires a range of qualities often rare in the broader financial-advice industry.

A passion for investment – whether in stocks, bonds, property, or international shares – is critical. Without that passion for investment and learning it is highly unlikely an individual will develop the depth and breadth of knowledge needed to succeed. That acquired knowledge goes way beyond trying to predict market trends, instead focusing on a deep understanding of individual investment assets. 

Experience and genuine understanding of an underlying investment create an advantage when opportunities to buy or sell arise at the times when value and price diverge. The successful stockbroker will also remain rational and objective, qualities often in short supply during market panics.  

Research edge

Rather than simply produce basic company profiles that are readily available free online, research analysts create in-depth content supported by comprehensive financial models. The value of research gives clients a competitive advantage, helping them develop a better understanding of companies with potentially complex business models.

And while financial modelling is integral to the research process, sometimes numbers do not tell the whole story. Often, it is the calibre of a CEO or the culture of a company that creates a competitive advantage. The only way to establish that is to engage with them.

Unlike individual investors, stockbrokers have the resources to meet regularly with industry leaders and company CEOs. Typically, successful stockbrokers will conduct dozens – even hundreds – of meetings with company management each year, building a comprehensive knowledge bank of the business and the people involved.

In a world with virtually unlimited investment options, finding great investments can still be challenging. Yet identifying and investing in those opportunities for the long term is the best way to generate outstanding returns for clients.

That does not happen by accident – it is the result of a process requiring diligence, experience, and discipline, backed by research. It is a process far removed from trading, charting, and speculating – all of which can produce stellar returns in the short term, but are likely to fail in the long run, in my opinion.

Support in good times – and bad

The 24-hour news cycle has made the financial press available to anyone, anytime. In times of market stress, the nature of our media, with its attention-grabbing headlines, can sometimes over-hype actual events, spreading fear throughout the market.

Likewise, in boom times, there is little reliable media coverage of the dangers of investing in overheated markets. In times like these, advising clients after rationally considering available information is an often difficult but crucial role stockbrokers play.  

In an industry synonymous with market-trading activity, real value is often added by the advice surrounding inactivity and rational thought with a focus on compounding returns in great investments.

March 2020 – which saw the biggest market crash in 33 years, followed by one of the sharpest rallies in history – was a stressful and confusing period for investors. It is precisely the type of environment where investors can benefit greatly from the rational, measured input of an investment adviser.

World of opportunity

While some broking firms focus their operations on specialist areas, such as advice to institutions or high-net-worth individuals, increasingly, stockbrokers are offering a full suite of financial services. Full-service stockbroking firms provide clients with the opportunity to invest not just in Australia, but globally, in stocks, Exchange Traded Funds (ETFs), fixed-interest products and managed funds.

Stockbrokers also add value to clients by providing access to Initial Public Offerings (IPOs) and secondary-market placements, including unique opportunities not available to private investors.

That access to a broad range of investments is supported by comprehensive financial advice, a service that goes beyond investment parameters.

Professional advisers are most likely to excel in the area in which they have the most experience, interest, and passion. That might be thoroughly researched, high-conviction stock picking on the ASX or providing a diversified global asset-allocation strategy.

The demand for investment advice from educated, passionate stockbrokers is as strong as ever, and as our financial system continues to grow and become more complex, the profession will continue to adapt and provide the services Australians need.