What to Look for in a Broker

Why Broker Choice Matters More Than It Looks

Most people choose an investment platform the way they choose a food delivery app — whichever one a friend mentioned, whichever has the nicest-looking interface, whichever is running an advert. For most consumer apps, that's a perfectly fine way to decide, because the downside of a poor choice is mild inconvenience. An investment broker is a different category of decision entirely, because it determines four things simultaneously: what you are legally allowed to invest in, what it costs you every year for decades, what happens to your money and your investments if the firm itself runs into trouble, and whether your assets are genuinely kept separate from the broker's own balance sheet, or merely promised to be.

That last point is the one most people never think to check, and it is the one that matters most if things go wrong. A broker is, functionally, a custodian — a business trusted to hold your shares, your fund units, and sometimes your cash, on your behalf. The app, the charts, the slick onboarding flow — all of that sits on top of a custody arrangement that either protects you properly if the firm fails, or doesn't. This chapter works through, in order of actual importance rather than how prominently brokers advertise them, the things worth checking before any money goes in.

Regulation — The Non-Negotiable First Check

Before anything else, confirm the firm is authorised by a credible financial regulator — in the UK, that means the Financial Conduct Authority (FCA); in the US, it means registration with the SEC and membership of FINRA; most other developed markets have an equivalent body. This is checkable in a few minutes and should never be skipped, regardless of how long a firm has been operating or how reputable it appears from marketing material alone.

In the UK specifically, the FCA maintains a public, searchable Financial Services Register (register.fca.org.uk) where you can look up any firm by name and confirm its authorisation status, what specific activities it's authorised to carry out, and whether any restrictions or warnings have been attached to its permissions. A small but persistent number of scams operate by "cloning" — impersonating the name, logo, and even firm reference number of a genuinely authorised firm, directing victims to a fake website that looks identical to the real one. The FCA register itself publishes the official contact details on file for each authorised firm specifically so you can cross-check against the website you've actually landed on, rather than trusting a phone number or address found only on the site you're trying to verify.

Regulation matters for a reason beyond simple legitimacy-checking: an authorised firm is bound by specific rules around how client money and client assets must be held, what disclosures it must make, and what recourse you have (through the Financial Ombudsman Service, in the UK) if something goes wrong in how you were treated. An unregulated or offshore firm offering what looks like the same service may have none of these obligations, however professional its marketing appears.

Client Asset Segregation — What It Actually Means

This is the single most important protection most investors never think to check, because it only matters in the specific scenario where a broker fails — and most investors, reasonably, don't spend much time imagining that scenario. But it's worth understanding, because it's the difference between a broker failure being a non-event for you, and it being a genuine financial catastrophe.

FCA rules require authorised investment firms to keep client assets — the actual shares, fund units, and other investments you hold — legally segregated from the firm's own assets, typically through a nominee company structure set up specifically to ring-fence client holdings. In practice, this means that if the broker itself becomes insolvent, your shares and funds are not available to the broker's creditors, because they were never the broker's property in the first place — the broker was only ever holding them on your behalf. The expected outcome in a broker failure, assuming segregation has been properly maintained, is that your holdings are transferred intact to another regulated custodian, sometimes with a delay and some administrative inconvenience, but without a loss of the underlying investments themselves.

This protection is not automatic just because a firm says it exists — it depends on the firm actually following the rules in practice, which is one of the things ongoing regulatory supervision is meant to verify. It's also worth understanding what segregation does not protect against: it has nothing to do with investment performance. If your shares fall in value because the underlying companies perform badly, segregation doesn't help you — it only protects against the broker's own insolvency, not against market risk, which is a completely separate category of risk you take on by investing in the first place.

Compensation Scheme Coverage — FSCS and Its Limits

Sitting alongside client asset segregation is a second layer of protection: the Financial Services Compensation Scheme (FSCS) in the UK, which covers eligible claims against failed, FCA-authorised firms up to £85,000 per person, per firm. It's worth being precise about what this figure actually covers, because it's commonly misunderstood.

The £85,000 limit is per person, per authorised firm — which has a practical consequence for larger portfolios: if your total holdings with a single broker meaningfully exceed £85,000, spreading your investments across two separate FCA-authorised firms gives you up to £170,000 of combined compensation coverage, rather than concentrating it all behind a single firm's protection limit. This is a genuinely useful piece of portfolio hygiene for larger investors, even though it adds a small amount of administrative complexity (two logins, two sets of statements, potentially two ISA allowances to track across).

US investors have a broadly equivalent scheme — the Securities Investor Protection Corporation (SIPC) — which covers up to $500,000 per customer per firm, of which up to $250,000 can be cash. The underlying principle is the same across both schemes: protection against the firm's failure, not against the market.

Custody Models — Nominee, Direct Registration, and Why It Matters

Beyond segregation in principle, it's worth understanding the specific structure through which most UK brokers actually hold your shares, because the terminology can be confusing and the practical implications differ slightly between models.

For the great majority of retail investors, a well-run nominee structure at a properly regulated firm provides perfectly adequate protection — it is the standard model across the UK investment industry, used by both low-cost challengers and long-established wealth managers alike. The practical takeaway isn't to seek out direct registration specifically (which brings its own complications, such as being responsible for voting rights administration yourself); it's simply to understand that "nominee account" is the normal, expected arrangement, not a red flag or a sign of lesser protection on its own.

What You Can Actually Invest In

Once regulation and asset protection are confirmed, the next practical question is whether the broker actually offers the specific things you want to invest in and the wrapper you want to hold them in. This sounds obvious, but it's a common source of frustration after the fact — someone opens an account, builds a habit around it, and only later discovers their chosen platform doesn't support something they now want to use.

• ISA availability. Not every broker offers a Stocks and Shares ISA — some focus purely on a general investing account. Given how central the ISA wrapper is to UK investing (covered in detail elsewhere in this course), confirm this before anything else on this list.
• SIPP availability. If retirement saving beyond a workplace pension is part of your plan, check whether the broker offers a Self-Invested Personal Pension, since not all platforms do, and SIPP-specific fee structures sometimes differ from the ISA fee structure on the same platform.
• Fund range versus share/ETF-only. Some lower-cost challenger platforms focus specifically on direct shares and ETFs and do not support traditional open-ended funds (unit trusts or OEICs) at all — relevant if you specifically want to hold a fund rather than its ETF equivalent.
• International market access. If you want direct exposure to, say, individual US or European shares rather than purely through UK-listed ETFs, confirm which overseas exchanges the platform actually supports, since this varies more than people expect.
• Fractional shares. Useful for smaller, regular contributions into expensive individual shares, though largely irrelevant if you're investing via funds or ETFs priced at more accessible per-unit levels.

All-In Costs, Not Just the Headline Number

Broker marketing tends to lead with a single, simple, attractive-sounding cost figure — "commission-free trading," "no platform fee" — and it's worth being specifically skeptical of any single headline number, because the real cost of using a broker is almost always a combination of several separate charges, not all of which are prominently advertised.

The only reliable way to compare brokers on cost is to add up every applicable charge for your specific, intended pattern of investing — a lump sum versus monthly contributions, UK-listed versus US-listed holdings, funds versus ETFs — rather than comparing a single headline figure across providers, since the "cheapest" broker for one investing pattern is frequently not the cheapest for a different one.

Payment for Order Flow and How "Free" Brokers Make Money

A broker offering commission-free trading is still a business that needs to generate revenue somewhere, and understanding where that revenue actually comes from is a useful piece of due diligence, even if it rarely changes the practical decision for a long-term, passive investor.

One common model, more prevalent among US brokers but present in various forms among some UK and international platforms too, is payment for order flow (PFOF) — where the broker routes client orders to a specific market maker in exchange for a payment, rather than necessarily seeking the single best available execution price on the open market. The market maker, in turn, profits from the small difference between the price it pays and the price at which it can then trade the shares itself. For a long-term investor placing an occasional or regular order in a liquid, widely traded fund or large-company share, the practical execution-quality difference this creates is typically very small — but it's a real, structural feature of how the broker's incentives work, and it's reasonable to understand it rather than assume "commission-free" means "the broker earns nothing from my trade."

Other common revenue sources for low-cost or free brokers include keeping the majority of the interest earned on client cash balances sitting uninvested in the account, charging for premium subscription tiers with additional research or features, and earning a margin on currency conversion when clients hold or trade foreign-denominated assets. None of these models are inherently improper or something to avoid entirely — they're simply worth knowing about, so the decision to use a particular broker is made with a clear picture of how the relationship actually works, rather than assuming "free" means no revenue changes hands at all.

Withdrawal Process and Practical Account Mechanics

Less dramatic than regulation or cost, but genuinely worth checking before you commit meaningfully to a platform, is how straightforward it actually is to get your own money back out when you need it. A handful of practical questions are worth answering upfront: how long does a withdrawal typically take to reach your bank account (commonly a few business days, though this varies); is there any fee for withdrawing, and if so, does it depend on frequency or amount; can you withdraw directly from an ISA without closing it, or does a withdrawal reduce your remaining annual allowance in a way you'd want to understand in advance; and what is the process, broadly, for transferring your ISA to a different provider in future, should you ever want to switch (typically taking some weeks, and worth checking whether "in specie" transfers — moving the actual investments rather than cashing out and rebuying — are supported, since this avoids a period of being out of the market during the switch).

None of these questions tend to be dealbreakers on their own, but collectively they describe how much friction you'd face if your circumstances or preferences change in future — and a platform that makes this process needlessly slow or costly is a meaningfully worse choice than one that doesn't, even if the two look identical on headline fees.

App, Tools, and Why They Come Last

None of this is to say the app and available tools don't matter at all — a platform that's genuinely frustrating to use day-to-day will discourage the very habits (checking in periodically, adjusting a standing order, reviewing an annual statement) that make long-term investing work. Charting tools, price alerts, portfolio breakdowns, and a clean, well-designed interface are all legitimately useful, particularly for anyone planning to be more actively involved in managing individual holdings rather than a simple, automated, diversified fund purchase.

The point of placing this category last in this chapter isn't that it's unimportant — it's that it is, overwhelmingly, the category that brokers compete hardest to make visually obvious during the sign-up process, and the category least likely to cause genuine financial harm if it turns out to be merely mediocre rather than excellent. A clunky app with properly segregated assets, FSCS coverage, and reasonable costs is a perfectly good choice. A beautiful app without those underlying protections is not — and the beauty of the app tells you nothing whatsoever about whether those protections exist.

The Full Checklist, in Priority Order