There are dozens of brokerages in Ireland offering dealing services in foreign shares. While all brokers will buy and sell shares for clients, different brokerages offer different types of service.
Some are execution brokers only and carry out clients' instructions. Others are known as advisory brokers and these will offer advice in addition to buying and selling shares.
A third type of broker is the discretionary broker, and these are licensed to buy and sell shares on a client's behalf based on their own judgment rather than explicit directions from a client for each transaction. Customers can also trade in shares on foreign exchanges using one multi-currency account and can track international business information through agency information provided by the brokerage.
In the case of Davy's portfolio options, prospective customers must provide proof of identity and of their address in order to open an account.
There is a minimum commission of €25 per transaction and for transactions up to €25,000, the fee is three quarters of a per cent. For the balance above that figure, the fee is half of 1 per cent. To open an online account with Davy, you will need an initial balance of at least €2,000.
Most brokers also charge other fees including an account maintenance fee and, where applicable, foreign exchange transaction fees. For online accounts, there is also usually a maintenance fee payable annually.
But for private investors putting their money into overseas shares directly, there are tax implications on yields that many consider a deterrent. To avoid the headaches associated with taxation, smaller investors would be better off looking at managed products offered by firms such as Irish Life, whose range of Scope products avoids complicated taxation systems. They offer an indirect route into overseas markets. A minimum investment of €5,000 over a five-year period is required but the initial investment and choice of product is the only time the customer will be involved, unless the institution allows switching between products.
Once a customer has invested in a product, the money must be left in the scheme for a fixed period. Early withdrawals are penalised. In the case of Scope products, the penalty is 5 per cent for withdrawals in the first year and 1 per cent for each subsequent year. There is no upfront charge for Scope products but an annual fund management fee is charged at 1.5 per cent of the value of the fund.
Yields from these managed, fixed-period funds will vary due to the exigencies of share investment; but the range of options available to investors is tailored to spread the risk widely.
Different products also carry different levels of risk and these should be clearly stated in promotional material.
The yields from direct investment in foreign shares, however, are bound to be more volatile. If an investor puts all of their funds into a single corporation and its share price plummets, serious losses will be incurred. Spreading investment is a better option but requires knowledge of the markets that most ordinary people do not have. Opting to invest through a broker in a mixed portfolio of shares spreads risk while still giving investors the option of choosing which stocks to buy or sell.
