- an Australian Financial Services (AFS) licence holder; or
- a director or employee of an AFS licence holder; or
- an Authorised Representative of an AFS licence holder.
Be careful to ensure the stockbroker has a licence, because otherwise you cannot be sure you are protected under the law.
Financial services guide
Your broker should give you a financial services guide (FSG) before you receive financial advice, or they buy or sell shares on your behalf.
There are some exceptions where time is of the essence and the FSG must then be given to you within 5 days. Insist on it if it is not offered – then please read it!
Broker as agent
According to the law a broker acts as your agent i.e. they act according to your instructions. Although in real terms they might be called more appropriately an "intermediary".
Reasonable care
Like all professionals, under the law a broker must act using reasonable care and skill when they act on your instructions.
Nevertheless, this must be within the general nature of the instructions you have given e.g. a broker can only get the best price for your share within the parameters of the instructions you have given.
Remember, though a broker must exercise reasonable care, much will depend on your instructions and the level of "risk" you wish to undertake.
ASX Rules
The ASX Rules also deal with many other aspects of a broker's behaviour, including:
- the keeping of records;
- accounts and auditing;
- reporting obligations of brokers;
- rights of brokers when buyers default;
- avoidance of a conflict of interest.
Contract between broker and client
Although there is a contract between the broker and the client, its precise nature depends on the written agreement.
If the relationship is one where you are giving instructions simply to buy a particular share, you cannot also expect other advice that is not necessarily covered by this unless it is so obvious and reasonable as to go without saying, and it is necessary to give effect to the relationship between you.
Fiduciary relationship
A broker has a "fiduciary" relationship with their client. This means the broker has a legal obligation to make a full and accurate disclosure of the broker's own interest in the transaction.
This is why the ASX Rules make it clear that the broker cannot have a conflict of interest. Under the law, a stockbroker must have a reasonable basis for any recommendation.
Client instructions
Within the limits of the law, a broker must carry out their client's instructions. This doesn't mean a broker should be responsible for ambiguous instructions, or that the broker should simply blindly follow your instructions without discussing them if they do not appear to be in your best interests.
Conflicts of interest
A broker must avoid situations which place them in a position where their duty to their client is at odds with their personal interests. This includes being in a position of conflict between different clients.
The primary responsibility of a broker is to advise clients and act on their behalf in the purchase and sale of shares, so obviously they cannot trade in competition with those interests.
Courts have long recognised the relationship that requires trust and integrity.
Similarly, a broker must tell a client of any information that might suggest the transaction is not in their interests.
They must also have a reasonable basis for recommending the stock.
How much will the broker charge?
You will find this out in the financial services guide (FSG) that you will be given (if not, ask for it).
There is no rule about fees (it is not Government controlled) but are usually based on a percentage of the value of the shares that are traded. They may also change a flat fee.
Last Updated – April 2010
