What Is a Stockbroker and Why Do You Need Them? [Experts Answers]

A stockbroker is a financial intermediary who facilitates the buying and selling of stocks on behalf of their clients. Sometimes a stockbroker is also a registered investment advisor or financial planner.

If you plan to buy stocks through an exchange such as NSE, you will need a stockbroker to facilitate your purchase. Buying stocks without a broker is possible but requires additional time and research.

You can also buy stocks directly from companies, but this route is not recommended since it involves a tedious and complicated process.

Stockbrokers earn a commission of about 0.5%-1% of the order’s total cost; however, it varies depending on the brokerage firm. For example, premium stock brokers in Kenya will charge an average of KES 1-3 per share.

Stockbrokers can offer you valuable advice when buying stocks. They can also close trades within seconds, so you don’t have to wait days for the transaction to complete.

Functions of a Stock Broker in Kenya

Here are some of the most common functions of stockbrokers in Kenya:

• Facilitate the buying and selling of stocks. A stockbroker acts as an intermediary between the buyer and seller of stocks at a fee or commission.
• Effectively manage taxation; for example, they might advise on whether to sell shares before the end of the financial year to minimize tax liability.
• Manage portfolio investment by advising which shares are good investments and which are not.
• Manage communications between investors and companies they have invested in, for example, by collecting dividend payments from a company on behalf of an investor.
• Help with the initial public offering (IPO) regulation in the stock market. An IPO is when a private company goes public by selling shares in the company for the first time.
• Help with company law, which outlines how companies should be managed and run.
• Help people buy shares in IPOs or initial public offerings of stock by a private company planning to go public.

Now that you know what a stockbroker can do, find out why you might need one below.

Why Do You Need A Stock Broker in Kenya?

Stockbrokers are important in Kenya because they can provide advice, research, and analysis to help you make the best choices. If you want to buy stocks without a broker or invest for your future (e.g., retirement), you will spend much more time researching companies and their sectors.

A stockbroker can also close trades within seconds, so you don’t have to wait days for the transaction to complete.

In a nutshell, Here are some potential benefits of using a stockbroker:

• Expertise: Stockbrokers have training and expertise in the financial markets, including knowledge of stocks, bonds, mutual funds, and other investment vehicles. They can provide valuable insights and advice on investment opportunities.
• Research: Stockbrokers have access to extensive research and analysis tools to help them identify potential investments and evaluate their risks and potential returns. They can provide investors with information that may not be easily accessible to individual investors.
• Diversification: Stockbrokers can help investors diversify their investment portfolios, reducing the risks associated with putting all of their money in one investment. They can recommend a mix of investments tailored to the investor’s specific financial goals and risk tolerance.
• Access to exclusive investments: Some investments are only available to institutional investors or high-net-worth individuals. Stockbrokers may have access to these exclusive investments and can help their clients take advantage of them.
• Trading expertise: Stockbrokers have experience executing trades and can help investors buy and sell securities at the most advantageous times. They can also provide guidance on trading strategies and techniques.
• Time savings: For investors who do not have the time or expertise to manage their own investments, a stockbroker can take on that responsibility, saving them time and effort.
• Personalized service: Stockbrokers can provide personalized service, working closely with investors to understand their financial goals and needs and tailor their investment strategies accordingly.

It’s important to note that while there are potential benefits to using a stockbroker, there are also risks and potential downsides, such as fees and commissions, conflicts of interest, and the possibility of poor performance. 

Let’s look at some of these drawbacks below: 

Disadvantages of Using a Stock Broker

As much as we recommend using stockbrokers instead of doing everything alone, they are not perfect.

Remember that these are salespeople looking to profit from your investments, so their interests are not necessarily aligned with yours.

That said, here are some disadvantages of using a stock broker:

• Commission Fees: Stock brokers charge a commission fee for their services. This can eat into your profits and increase the cost of trading.
• Lack of Control: When you hire a stock broker, you give up some control over your investments. The broker makes the decisions on your behalf, and you must trust their judgment.
• Conflicts of Interest: Brokers may have their own interests in mind when making investment decisions. For example, they may recommend stocks that benefit them more than you.
• Limited Access: Some brokers may have limited access to certain investment opportunities or markets. This can restrict your investment options and potentially limit your returns.
• Risk: Investing always carries some risk, but the risk can be amplified if the broker makes poor investment decisions on your behalf.
• Lack of Transparency: Brokers may not always disclose all of the fees or commissions that they charge, which can make it difficult to fully understand the costs of your investments.
• Dependence: If you rely too heavily on a stock broker, you may not develop the knowledge or skills necessary to make investment decisions independently.

How Much Do Stockbrokers Charge in Kenya?

Stockbroker fees vary widely depending on which company you are working with. Generally, they charge 0.5%-2% of the order’s total cost.

For example, if you wanted to buy KES 10,000 worth of shares in Safaricom, your broker would earn about 50-100 shillings for facilitating the transaction.

Overall, the fees charged by stockbrokers in Kenya may vary depending on the broker and the service they provide. Here are some common fees that stockbrokers in Kenya may charge:

1. Brokerage Fees: This is the fee charged for buying or selling stocks on behalf of a client. Brokerage fees in Kenya typically range between 0.5% to 2% of the total transaction value.
2. Account Maintenance Fees: Some stockbrokers in Kenya may charge an annual account maintenance fee, which covers the cost of maintaining a client’s account.
3. Withdrawal Fees: The broker may charge a withdrawal fee if a client wishes to withdraw funds from their trading account.
4. Inactivity Fees: Some brokers may charge an inactivity fee if a client does not make any trades or account activity for a certain period of time.

The amount that stockbrokers charge you does not affect the price of the stocks, but it can add up significantly over time.

It’s important to note that these fees may vary between different brokers, and we recommend researching and comparing fees before choosing a broker. Additionally, it’s important to understand that these fees are just one aspect to consider when choosing a stockbroker. You should also consider reputation, customer service, and investment options.

Can You Buy Stocks in Kenya Without a Broker?

Yes, you can buy stocks directly from companies without using a stockbroker.

However, it is not recommended because:

• The process is very time consuming and frustrating if you are new in the market
• You do not have access to the same research and analysis as a full-time stockbroker
• You may not pick the best price for a given stock
• You risk not being able to close the transaction within a short time

Stockbrokers in Kenya are professionals trained in the best practices in the Kenyan market. As such, we advise that you use their service when buying stocks or any other kind of assets.

Can Stock Brokers Steal Your Money?

While stockbrokers might not directly steal your money, they can use fraudulent trading tactics that will benefit them instead of you.

For example, most modern stockbrokers can place hidden orders without your knowledge to increase the spread.

Even if they have no intention of trading with you, they are still profiting from you!

The broker might also impose hidden fees on your transactions.

If you are working with a brokerage firm and suspect foul play, you can press charges and get your money back before it is too late.

Where Can I Complain Against a Stockbroker in Kenya?

If you are dissatisfied with a broker in any manner, the first step should be to attempt to negotiate your concerns peacefully with them.

However, if this can’t work, you can forward your complaints to the Capital Markets Authority (CMA) or the Nairobi Securities Exchange (NSE).

Usually, small complaints against brokers will be handled by NSE. But if the matter is serious and the broker is found to have committed a financial crime, they will be handled by CMA.

You can avoid all of these by taking the time to research your stock brokers and ensure that you are working with a credible person or firm.

That is why you need to know some factors to consider when choosing a stockbroker in Kenya.

What to Look for When Hiring the Best Stock Broker in Kenya

All stockbrokers in Kenya are not the same. Therefore, before signing up with a stockbroker, make sure they:

• Are approved by the NSE and The Capital Markets Authority of Kenya (CMA)
• Have training and experience in the Kenyan stock market
• Have a good reputation with their current and past clients
• Offer cheap fees for their services (ideally, 1% of your order value) and low brokerage commissions ( about 0.5%)!
• Will provide you with high-quality research and analysis to help you make informed choices
• Offer guidance on how to buy stocks and the kinds of assets, sectors, etc. you should invest in
• Have a good understanding of your objectives and risk appetite (i.e., the amount of risk you are comfortable with) and explain how they can help you meet those goals
• Provide quality service and support when executing your order
• Are available to answer any questions or solve problems in a timely manner

We also recommend working with a registered and reputable brokerage firm instead of an individual broker.

The Bottom line

Stockbrokers in Kenya do not have any magical skills that will allow them to pick stocks for you, but they can help you buy and sell investments powerfully.

As long as you are working with a broker who has been vetted by the Capital Markets Authority of Kenya and The Nairobi Securities Exchange, then it is worth hiring one to help you trade your assets.

Look out for fraudulent brokers who may try to steal your money or charge you high commissions, and make sure the broker is already accountable to an authority like the CMA.

Your stockbroker can help you find investments with growing value at great prices, but they shouldn’t be the only thing deciding your final choices.

Make sure they are working for you by using them as a tool to make your money grow.

The stock market is risky and you can lose all of your money if you are not careful. But if you take the time to learn about the market, educate yourself with information on individual stocks, and hire a good broker to help you, then that risk will be worthwhile!